249 
Choices Commissioner may collect and use social security 
account numbers as provided for in section 205(v)(1).’’. 
(B) IMPROVING THE INTEGRITY OF DATA 
AND EFFECTIVENESS OF SAVE PROGRAM.—Sec-
tion 1137(d) of the Social Security Act (42 
U.S.C. 1320b–7(d)) is amended by adding at 
the end the following new paragraphs: 
‘‘(6)(A) With respect to the use by any agency of the 
system described in subsection (b) by programs specified 
in subsection (b) or any other use of such system, the 
United States Citizenship and Immigration Services and 
any other agency charged with the management of the sys-
tem shall establish appropriate safeguards necessary to 
protect and improve the integrity and accuracy of data 
relating to individuals by— 
‘‘(i) establishing a process through which such 
individuals are provided access to, and the ability to 
amend, correct, and update, their own personally 
identifiable information contained within the system; 
‘‘(ii) providing a written response, without 
undue delay, to any individual who has made such 
a request to amend, correct, or update such individ-
ual’s own personally identifiable information con-
tained within the system; and
250 
‘‘(iii) developing a written notice for user agen-
cies to provide to individuals who are denied a ben-
efit due to a determination of ineligibility based on 
a final verification determination under the system. 
‘‘(B) The notice described in subparagraph (A)(ii) 
shall include— 
‘‘(i) information about the reason for such no-
tice; 
‘‘(ii) a description of the right of the recipient 
of the notice under subparagraph (A)(i) to contest 
such notice; 
‘‘(iii) a description of the right of the recipient 
under subparagraph (A)(i) to access and attempt to 
amend, correct, and update the recipient’s own per-
sonally identifiable information contained within 
records of the system described in paragraph (3); 
and 
‘‘(iv) instructions on how to contest such notice 
and attempt to correct records of such system relat-
ing to the recipient, including contact information 
for relevant agencies.’’. 
(C) STREAMLINING
ADMINISTRATION
OF 
VERIFICATION
PROCESS
FOR
UNITED
STATES 
CITIZENS.—Section 1902(ee)(2) of the Social
251 
Security Act (42 U.S.C. 1396a(ee)(2)) is 
amended by adding at the end the following: 
‘‘(D) In carrying out the verification procedures 
under this subsection with respect to a State, if the Com-
missioner of Social Security determines that the records 
maintained by such Commissioner are not consistent with 
an individual’s allegation of United States citizenship, 
pursuant to procedures which shall be established by the 
State in coordination with the Commissioner of Social Se-
curity, the Secretary of Homeland Security, and the Sec-
retary of Health and Human Services— 
‘‘(i) the Commissioner of Social Security shall 
inform the State of the inconsistency; 
‘‘(ii) upon being so informed of the inconsist-
ency, the State shall submit the information on the 
individual to the Secretary of Homeland Security for 
a determination of whether the records of the De-
partment of Homeland Security indicate that the in-
dividual is a citizen; 
‘‘(iii) upon making such determination, the De-
partment of Homeland Security shall inform the 
State of such determination; and 
‘‘(iv) information provided by the Commissioner 
of Social Security shall be considered as strictly con-
fidential and shall only be used by the State and the
252 
Secretary of Homeland Security for the purposes of 
such verification procedures. 
‘‘(E) Verification of status eligibility pursuant to the 
procedures established under this subsection shall be 
deemed a verification of status eligibility for purposes of 
this title, title XXI, and affordability credits under section 
341(b)(4) of the Affordable Health Care for America Act, 
regardless of the program in which the individual is apply-
ing for benefits.’’. 
(c) USE OF AFFORDABILITY CREDITS.— 
(1) IN GENERAL.—In Y1 and Y2 an affordable 
credit eligible individual may use an affordability 
credit only with respect to a basic plan. 
(2) FLEXIBILITY
IN
PLAN
ENROLLMENT
AU-
THORIZED.—Beginning with Y3, the Commissioner 
shall establish a process to allow an affordability 
premium credit under section 343, but not the af-
fordability cost-sharing credit under section 344, to 
be used for enrollees in enhanced or premium plans. 
In the case of an affordable credit eligible individual 
who enrolls in an enhanced or premium plan, the in-
dividual shall be responsible for any difference be-
tween the premium for such plan and the afford-
ability credit amount otherwise applicable if the indi-
vidual had enrolled in a basic plan.
253 
(d) ACCESS TO DATA.—In carrying out this subtitle, 
the Commissioner shall request from the Secretary of the 
Treasury consistent with section 6103 of the Internal Rev-
enue Code of 1986 such information as may be required 
to carry out this subtitle. 
(e) NO CASH REBATES.—In no case shall an afford-
able credit eligible individual receive any cash payment as 
a result of the application of this subtitle. 
SEC. 342. AFFORDABLE CREDIT ELIGIBLE INDIVIDUAL. 
(a) DEFINITION.— 
(1) IN GENERAL.—For purposes of this divi-
sion, the term ‘‘affordable credit eligible individual’’ 
means, subject to subsection (b) and section 346, an 
individual who is lawfully present in a State in the 
United States (other than as a nonimmigrant de-
scribed in a subparagraph (excluding subparagraphs 
(K), (T), (U), and (V)) of section 101(a)(15) of the 
Immigration and Nationality Act)— 
(A) who is enrolled under an Exchange- 
participating health benefits plan and is not en-
rolled under such plan as an employee (or de-
pendent of an employee) through an employer 
qualified health benefits plan that meets the re-
quirements of section 412;
254 
(B) with modified adjusted gross income 
below 400 percent of the Federal poverty level 
for a family of the size involved; 
(C) who is not a Medicaid eligible indi-
vidual, other than an individual during a transi-
tion period under section 302(d)(3)(B)(ii); and 
(D) subject to paragraph (3), who is not 
enrolled in acceptable coverage (other than an 
Exchange-participating health benefits plan). 
(2) TREATMENT
OF
FAMILY.—Except as the 
Commissioner may otherwise provide, members of 
the same family who are affordable credit eligible in-
dividuals shall be treated as a single affordable cred-
it individual eligible for the applicable credit for such 
a family under this subtitle. 
(3) SPECIAL
RULE
FOR
INDIANS.—Subpara-
graph (D) of paragraph (1) shall not apply to an in-
dividual who has coverage that is treated as accept-
able coverage for purposes of section 59B(d)(2) of 
the Internal Revenue Code of 1986 but is not treat-
ed as acceptable coverage for purposes of this divi-
sion. 
(b) LIMITATIONS ON EMPLOYEE AND DEPENDENT 
DISQUALIFICATION.—
255 
(1) IN GENERAL.—Subject to paragraph (2), 
the term ‘‘affordable credit eligible individual’’ does 
not include a full-time employee of an employer if 
the employer offers the employee coverage (for the 
employee and dependents) as a full-time employee 
under a group health plan if the coverage and em-
ployer contribution under the plan meet the require-
ments of section 412. 
(2) EXCEPTIONS.— 
(A) 
FOR
CERTAIN
FAMILY
CIR-
CUMSTANCES.—The Commissioner shall estab-
lish such exceptions and special rules in the 
case described in paragraph (1) as may be ap-
propriate in the case of a divorced or separated 
individual or such a dependent of an employee 
who would otherwise be an affordable credit eli-
gible individual. 
(B) FOR UNAFFORDABLE EMPLOYER COV-
ERAGE.—Beginning in Y2, in the case of full- 
time employees for which the cost of the em-
ployee premium for coverage under a group 
health plan would exceed 12 percent of current 
modified adjusted gross income (determined by 
the Commissioner on the basis of verifiable doc-
umentation), paragraph (1) shall not apply.
256 
(c) INCOME DEFINED.— 
(1) IN GENERAL.—In this title, the term ‘‘in-
come’’ means modified adjusted gross income (as de-
fined in section 59B of the Internal Revenue Code 
of 1986). 
(2) STUDY
OF
INCOME
DISREGARDS.—The 
Commissioner shall conduct a study that examines 
the application of income disregards for purposes of 
this subtitle. Not later than the first day of Y2, the 
Commissioner shall submit to Congress a report on 
such study and shall include such recommendations 
as the Commissioner determines appropriate. 
(d) CLARIFICATION
OF TREATMENT
OF AFFORD-
ABILITY CREDITS.—Affordability credits under this sub-
title shall not be treated, for purposes of title IV of the 
Personal Responsibility and Work Opportunity Reconcili-
ation Act of 1996, to be a benefit provided under section 
403 of such title. 
SEC. 343. AFFORDABILITY PREMIUM CREDIT. 
(a) IN GENERAL.—The affordability premium credit 
under this section for an affordable credit eligible indi-
vidual enrolled in an Exchange-participating health bene-
fits plan is in an amount equal to the amount (if any) 
by which the reference premium amount specified in sub-
section (c), exceeds the affordable premium amount speci-
257 
fied in subsection (b) for the individual, except that in no 
case shall the affordable premium credit exceed the pre-
mium for the plan. 
(b) AFFORDABLE PREMIUM AMOUNT.— 
(1) IN
GENERAL.—The affordable premium 
amount specified in this subsection for an individual 
for the annual premium in a plan year shall be equal 
to the product of— 
(A) the premium percentage limit specified 
in paragraph (2) for the individual based upon 
the individual’s modified adjusted gross income 
for the plan year; and 
(B) the individual’s modified adjusted 
gross income for such plan year. 
(2) PREMIUM PERCENTAGE LIMITS BASED ON 
TABLE.—The Commissioner shall establish premium 
percentage limits so that for individuals whose modi-
fied adjusted gross income is within an income tier 
specified in the table in subsection (d) such percent-
age limits shall increase, on a sliding scale in a lin-
ear manner, from the initial premium percentage to 
the final premium percentage specified in such table 
for such income tier. 
(c) REFERENCE PREMIUM AMOUNT.—The reference 
premium amount specified in this subsection for a plan
258 
year for an individual in a premium rating area is equal 
to the average premium for the 3 basic plans in the area 
for the plan year with the lowest premium levels. In com-
puting such amount the Commissioner may exclude plans 
with extremely limited enrollments. 
(d) TABLE OF PREMIUM PERCENTAGE LIMITS, AC-
TUARIAL VALUE PERCENTAGES, AND OUT-OF-POCKET 
LIMITS FOR Y1 BASED ON INCOME TIER.— 
(1) IN GENERAL.—For purposes of this sub-
title, subject to paragraph (3) and section 346, the 
table specified in this subsection is as follows: 
In the case of 
modified adjusted 
gross income (ex-
pressed as a per-
cent of FPL) with-
in the following in-
come tier: 
The initial 
premium 
percentage 
is— 
The final 
premium 
percentage 
is— 
The actu-
arial value 
percentage 
is— 
The out-of- 
pocket limit 
for Y1 is— 
133% through 
150% 
1.5% 
3.0% 
97% 
$500 
150% through 
200% 
3.0% 
5.5% 
93% 
$1,000 
200% through 
250% 
5.5% 
8.0% 
85% 
$2,000 
250% through 
300% 
8.0% 
10.0% 
78% 
$4,000 
300% through 
350% 
10.0% 
11.0% 
72% 
$4,500 
350% through 
400% 
11.0% 
12.0% 
70% 
$5,000 
(2) SPECIAL RULES.—For purposes of applying 
the table under paragraph (1): 
(A) FOR LOWEST LEVEL OF INCOME.—In 
the case of an individual with income that does 
not exceed 133 percent of FPL, the individual
259 
shall be considered to have income that is 133 
percent of FPL. 
(B) APPLICATION OF HIGHER ACTUARIAL 
VALUE
PERCENTAGE
AT
TIER
TRANSITION 
POINTS.—If two actuarial value percentages 
may be determined with respect to an indi-
vidual, the actuarial value percentage shall be 
the higher of such percentages. 
(3) INDEXING.—For years after Y1, the Com-
missioner shall adjust the initial and final premium 
percentages to maintain the ratio of governmental to 
enrollee shares of premiums over time, for each in-
come tier identified in the table in paragraph (1). 
SEC. 344. AFFORDABILITY COST-SHARING CREDIT. 
(a) IN GENERAL.—The affordability cost-sharing 
credit under this section for an affordable credit eligible 
individual enrolled in an Exchange-participating health 
benefits plan is in the form of the cost-sharing reduction 
described in subsection (b) provided under this section for 
the income tier in which the individual is classified based 
on the individual’s modified adjusted gross income. 
(b) COST-SHARING
REDUCTIONS.—The Commis-
sioner shall specify a reduction in cost-sharing amounts 
and the annual limitation on cost-sharing specified in sec-
tion 222(c)(2)(B) under a basic plan for each income tier
260 
specified in the table under section 343(d), with respect 
to a year, in a manner so that, as estimated by the Com-
missioner— 
(1) the actuarial value of the coverage with 
such reduced cost-sharing amounts (and the reduced 
annual cost-sharing limit) is equal to the actuarial 
value percentage (specified in the table under section 
343(d) for the income tier involved) of the full actu-
arial value if there were no cost-sharing imposed 
under the plan; and 
(2) the annual limitation on cost-sharing speci-
fied in section 222(c)(2)(B) is reduced to a level 
that does not exceed the maximum out-of-pocket 
limit specified in subsection (c). 
(c) MAXIMUM OUT-OF-POCKET LIMIT.— 
(1) IN GENERAL.—Subject to paragraph (2), 
the maximum out-of-pocket limit specified in this 
subsection for an individual within an income tier— 
(A) for individual coverage— 
(i) for Y1 is the out-of-pocket limit 
for Y1 specified in subsection (c) in the 
table under section 343(d) for the income 
tier involved; or 
(ii) for a subsequent year is such out- 
of-pocket limit for the previous year under
261 
this subparagraph increased (rounded to 
the nearest $10) for each subsequent year 
by the percentage increase in the enroll-
ment-weighted average of premium in-
creases for basic plans applicable to such 
year; or 
(B) for family coverage is twice the max-
imum out-of-pocket limit under subparagraph 
(A) for the year involved. 
(2) ADJUSTMENT.—The Commissioner shall ad-
just the maximum out-of-pocket limits under para-
graph (1) to ensure that such limits meet the actu-
arial value percentage specified in the table under 
section 343(d) for the income tier involved. 
(d) DETERMINATION AND PAYMENT OF COST-SHAR-
ING AFFORDABILITY CREDIT.—In the case of an afford-
able credit eligible individual in a tier enrolled in an Ex-
change-participating health benefits plan offered by a 
QHBP offering entity, the Commissioner shall provide for 
payment to the offering entity of an amount equivalent 
to the increased actuarial value of the benefits under the 
plan provided under section 303(c)(2)(B) resulting from 
the reduction in cost-sharing described in subsections (b) 
and (c).
262 
SEC. 345. INCOME DETERMINATIONS. 
(a) IN GENERAL.—In applying this subtitle for an 
affordability credit for an individual for a plan year, the 
individual’s income shall be the income (as defined in sec-
tion 342(c)) for the individual for the most recent taxable 
year (as determined in accordance with rules of the Com-
missioner). The Federal poverty level applied shall be such 
level in effect as of the date of the application. 
(b) PROGRAM INTEGRITY; INCOME VERIFICATION 
PROCEDURES.— 
(1) PROGRAM INTEGRITY.—The Commissioner 
shall take such steps as may be appropriate to en-
sure the accuracy of determinations and redeter-
minations under this subtitle. 
(2) INCOME VERIFICATION.— 
(A) IN GENERAL.—Upon an initial applica-
tion of an individual for an affordability credit 
under this subtitle (or in applying section 
342(b)) or upon an application for a change in 
the affordability credit based upon a significant 
change in modified adjusted gross income de-
scribed in subsection (c)(1)— 
(i) the Commissioner shall request 
from the Secretary of the Treasury the dis-
closure to the Commissioner of such infor-
mation as may be permitted to verify the
263 
information contained in such application; 
and 
(ii) the Commissioner shall use the in-
formation so disclosed to verify such infor-
mation. 
(B) 
ALTERNATIVE
PROCEDURES.—The 
Commissioner shall establish procedures for the 
verification of income for purposes of this sub-
title if no income tax return is available for the 
most recent completed tax year. 
(c) SPECIAL RULES.— 
(1) CHANGES IN INCOME AS A PERCENT OF 
FPL.—In the case that an individual’s income (ex-
pressed as a percentage of the Federal poverty level 
for a family of the size involved) for a plan year is 
expected (in a manner specified by the Commis-
sioner) to be significantly different from the income 
(as so expressed) used under subsection (a), the 
Commissioner shall establish rules requiring an indi-
vidual to report, consistent with the mechanism es-
tablished under paragraph (2), significant changes 
in such income (including a significant change in 
family composition) to the Commissioner and requir-
ing the substitution of such income for the income 
otherwise applicable.
264 
(2) REPORTING OF SIGNIFICANT CHANGES IN 
INCOME.—The Commissioner shall establish rules 
under which an individual determined to be an af-
fordable credit eligible individual would be required 
to inform the Commissioner when there is a signifi-
cant change in the modified adjusted gross income 
of the individual (expressed as a percentage of the 
FPL for a family of the size involved) and of the in-
formation regarding such change. Such mechanism 
shall provide for guidelines that specify the cir-
cumstances that qualify as a significant change, the 
verifiable information required to document such a 
change, and the process for submission of such in-
formation. If the Commissioner receives new infor-
mation from an individual regarding the modified 
adjusted gross income of the individual, the Commis-
sioner shall provide for a redetermination of the in-
dividual’s eligibility to be an affordable credit eligible 
individual. 
(3) TRANSITION FOR CHIP.—In the case of a 
child described in section 302(d)(4), the Commis-
sioner shall establish rules under which the modified 
adjusted gross income of the child is deemed to be 
no greater than the family income of the child as
265 
most recently determined before Y1 by the State 
under title XXI of the Social Security Act. 
(4) STUDY OF GEOGRAPHIC VARIATION IN AP-
PLICATION OF FPL.— 
(A) 
IN
GENERAL.—The 
Secretary 
of 
Health and Human Services shall conduct a 
study to examine the feasibility and implication 
of adjusting the application of the Federal pov-
erty level under this subtitle for different geo-
graphic areas so as to reflect the variations in 
cost-of-living among different areas within the 
United States. If the Secretary determines that 
an adjustment is feasible, the study should in-
clude a methodology to make such an adjust-
ment. Not later than the first day of Y1, the 
Secretary shall submit to Congress a report on 
such study and shall include such recommenda-
tions as the Secretary determines appropriate. 
(B) INCLUSION OF TERRITORIES.— 
(i) IN GENERAL.—The Secretary shall 
ensure that the study under subparagraph 
(A) covers the territories of the United 
States and that special attention is paid to 
the disparity that exists among poverty lev-
els and the cost of living in such territories
266 
and to the impact of such disparity on ef-
forts to expand health coverage and ensure 
health care. 
(ii) TERRITORIES DEFINED.—In this 
subparagraph, the term ‘‘territories of the 
United States’’ includes the Common-
wealth of Puerto Rico, the United States 
Virgin Islands, Guam, the Northern Mar-
iana Islands, and any other territory or 
possession of the United States. 
(d) PENALTIES FOR MISREPRESENTATION.—In the 
case of an individual who intentionally misrepresents 
modified adjusted gross income or the individual fails 
(without regard to intent) to disclose to the Commissioner 
a significant change in modified adjusted gross income 
under subsection (c) in a manner that results in the indi-
vidual becoming an affordable credit eligible individual 
when the individual is not or in the amount of the afford-
ability credit exceeding the correct amount— 
(1) the individual is liable for repayment of the 
amount of the improper affordability credit; and 
(2) in the case of such an intentional misrepre-
sentation or other egregious circumstances specified 
by the Commissioner, the Commissioner may impose 
an additional penalty.
267 
SEC. 346. SPECIAL RULES FOR APPLICATION TO TERRI-
TORIES. 
(a) ONE-TIME ELECTION FOR TREATMENT AND AP-
PLICATION OF FUNDING.— 
(1) IN GENERAL.—A territory may elect, in a 
form and manner specified by the Commissioner in 
consultation with the Secretary of Health and 
Human Services and the Secretary of the Treasury 
and not later than October 1, 2012, either— 
(A) to be treated as a State for purposes 
of applying this title and title II; or 
(B) not to be so treated but instead, to 
have the dollar limitation otherwise applicable 
to the territory under subsections (f) and (g) of 
section 1108 of the Social Security Act (42 
U.S.C. 1308) for a fiscal year increased by a 
dollar amount equivalent to the cap amount de-
termined under subsection (c)(2) for the terri-
tory as applied by the Secretary for the fiscal 
year involved. 
(2) CONDITIONS FOR ACCEPTANCE.—The Com-
missioner has the nonreviewable authority to accept 
or reject an election described in paragraph (1)(A). 
Any such acceptance is— 
(A) contingent upon entering into an 
agreement described in subsection (b) between
268 
the Commissioner and the territory and sub-
section (c); and 
(B) subject to the approval of the Sec-
retary of Health and Human Services and the 
Secretary of the Treasury and subject to such 
other terms and conditions as the Commis-
sioner, in consultation with such Secretaries, 
may specify. 
(3) DEFAULT
RULE.—A territory failing to 
make such an election (or having an election under 
paragraph (1)(A) not accepted under paragraph (2)) 
shall be treated as having made the election de-
scribed in paragraph (1)(B). 
(b) AGREEMENT FOR SUBSTITUTION OF PERCENT-
AGES FOR AFFORDABILITY CREDITS.— 
(1) NEGOTIATION.—In the case of a territory 
making an election under subsection (a)(1)(A) (in 
this section referred to as an ‘‘electing territory’’), 
the Commissioner, in consultation with the Secre-
taries of Health and Human Services and the Treas-
ury, shall enter into negotiations with the govern-
ment of such territory so that, before Y1, there is 
an agreement reached between the parties on the 
percentages that shall be applied under paragraph
269 
(2) for that territory. The Commissioner shall not 
enter into such an agreement unless— 
(A) payments made under this subtitle 
with respect to residents of the territory are 
consistent with the cap established under sub-
section (c) for such territory and with sub-
section (d); and 
(B) the requirements of paragraphs (3) 
and (4) are met. 
(2) APPLICATION
OF
SUBSTITUTE
PERCENT-
AGES AND DOLLAR AMOUNTS.—In the case of an 
electing territory, there shall be substituted in sec-
tion 342(a)(1)(B) and in the table in section 
341(d)(1) for 400 percent, 133 percent, and other 
percentages and dollar amounts specified in such 
table, such respective percentages and dollar 
amounts as are established under the agreement 
under paragraph (1) consistent with the following: 
(A) NO INCOME GAP BETWEEN MEDICAID 
AND
AFFORDABILITY
CREDITS.—The 
sub-
stituted percentages shall be specified in a man-
ner so as to prevent any gap in coverage for in-
dividuals between income level at which medical 
assistance is available through Medicaid and
270 
the income level at which affordability credits 
are available. 
(B) ADJUSTMENT
FOR
OUT-OF-POCKET 
RESPONSIBILITY
FOR
PREMIUMS
AND
COST- 
SHARING IN RELATION TO INCOME.—The sub-
stituted percentages of FPL for income tiers 
under such table shall be specified in a manner 
so that— 
(i) affordable credit eligible individ-
uals residing in the territory bear the same 
out-of-pocket responsibility for premiums 
and cost-sharing in relation to average in-
come for residents in that territory, as 
(ii) the out-of-pocket responsibility for 
premiums and cost-sharing for affordable 
credit eligible individuals residing in the 50 
States or the District of Columbia in rela-
tion to average income for such residents. 
(3) SPECIAL RULES WITH RESPECT TO APPLI-
CATION OF TAX AND PENALTY PROVISIONS.—The 
electing territory shall enact one or more laws under 
which provisions similar to the following provisions 
apply with respect to such territory: 
(A) Section 59B of the Internal Revenue 
Code of 1986, except that any resident of the
271 
territory who is not an affordable credit eligible 
individual but who would be an affordable cred-
it eligible individual if such resident were a resi-
dent of one of the 50 States (and any quali-
fying child residing with such individual) may 
be treated as covered by acceptable coverage. 
(B) Section 4980H of the Internal Rev-
enue Code of 1986 and section 502(c)(11) of 
the Employee Retirement Income Security Act 
of 1974. 
(C) Section 3121(c) of the Internal Rev-
enue Code of 1986. 
(4) IMPLEMENTATION OF INSURANCE REFORM 
AND CONSUMER PROTECTION REQUIREMENTS.—The 
electing territory shall enact and implement such 
laws and regulations as may be required to apply the 
requirements of title II with respect to health insur-
ance coverage offered in the territory. 
(c) CAP ON ADDITIONAL EXPENDITURES.— 
(1) IN GENERAL.—In entering into an agree-
ment with an electing territory under subsection (b), 
the Commissioner shall ensure that the aggregate 
expenditures under this subtitle with respect to resi-
dents of such territory during the period beginning 
with Y1 and ending with 2019 will not exceed the
272 
cap amount specified in paragraph (2) for such ter-
ritory. The Commissioner shall adjust from time to 
time the percentages applicable under such agree-
ment as needed in order to carry out the previous 
sentence. 
(2) CAP AMOUNT.— 
(A) IN GENERAL.—The cap amount speci-
fied in this paragraph— 
(i) for Puerto Rico is $3,700,000,000 
increased by the amount (if any) elected 
under subparagraph (C); or 
(ii) for another territory is the portion 
of $300,000,000 negotiated for such terri-
tory under subparagraph (B). 
(B) NEGOTIATION
FOR
CERTAIN
TERRI-
TORIES.—The Commissioner in consultation 
with the Secretary of Health and Human Serv-
ices shall negotiate with the governments of the 
territories (other than Puerto Rico) to allocate 
the amount specified in subparagraph (A)(ii) 
among such territories. 
(C) OPTIONAL
SUPPLEMENTATION
FOR 
PUERTO RICO.— 
(i) IN
GENERAL.—Puerto Rico may 
elect, in a form and manner specified by
273 
the Secretary of Health and Human Serv-
ices in consultation with the Commissioner 
to increase the dollar amount specified in 
subparagraph 
(A)(i) 
by 
up 
to 
$1,000,000,000. 
(ii) OFFSET
IN
MEDICAID
CAP.—If 
Puerto Rico makes the election described 
in clause (i), the Secretary shall decrease 
the dollar limitation otherwise applicable to 
Puerto Rico under subsections (f) and (g) 
of section 1108 of the Social Security Act 
(42 U.S.C. 1308) for a fiscal year by the 
additional aggregate payments the Sec-
retary estimates will be payable under this 
section for the fiscal year because of such 
election. 
(d) LIMITATION ON FUNDING.—In no case shall this 
section (including the agreement under subsection (b)) 
permit— 
(1) the obligation of funds for expenditures 
under this subtitle for periods beginning on or after 
January 1, 2020; or 
(2) any increase in the dollar limitation de-
scribed in subsection (a)(1)(B) for any portion of 
any fiscal year occurring on or after such date.
274 
SEC. 347. NO FEDERAL PAYMENT FOR UNDOCUMENTED 
ALIENS. 
Nothing in this subtitle shall allow Federal payments 
for affordability credits on behalf of individuals who are 
not lawfully present in the United States. 
TITLE IV—SHARED 
RESPONSIBILITY 
Subtitle A—Individual 
Responsibility 
SEC. 401. INDIVIDUAL RESPONSIBILITY. 
For an individual’s responsibility to obtain acceptable 
coverage, see section 59B of the Internal Revenue Code 
of 1986 (as added by section 501 of this Act). 
Subtitle B—Employer 
Responsibility 
PART 1—HEALTH COVERAGE PARTICIPATION 
REQUIREMENTS 
SEC. 411. HEALTH COVERAGE PARTICIPATION REQUIRE-
MENTS. 
An employer meets the requirements of this section 
if such employer does all of the following: 
(1) OFFER OF COVERAGE.—The employer of-
fers each employee individual and family coverage 
under a qualified health benefits plan (or under a 
current employment-based health plan (within the
275 
meaning of section 202(b))) in accordance with sec-
tion 412. 
(2) CONTRIBUTION
TOWARDS
COVERAGE.—If 
an employee accepts such offer of coverage, the em-
ployer makes timely contributions towards such cov-
erage in accordance with section 412. 
(3) CONTRIBUTION IN LIEU OF COVERAGE.— 
Beginning with Y2, if an employee declines such 
offer but otherwise obtains coverage in an Exchange- 
participating health benefits plan (other than by rea-
son of being covered by family coverage as a spouse 
or dependent of the primary insured), the employer 
shall make a timely contribution to the Health In-
surance Exchange with respect to each such em-
ployee in accordance with section 413. 
SEC. 412. EMPLOYER RESPONSIBILITY TO CONTRIBUTE TO-
WARD EMPLOYEE AND DEPENDENT COV-
ERAGE. 
(a) IN GENERAL.—An employer meets the require-
ments of this section with respect to an employee if the 
following requirements are met: 
(1) OFFERING OF COVERAGE.—The employer 
offers the coverage described in section 411(1). In 
the case of an Exchange-eligible employer, the em-
ployer may offer such coverage either through an
276 
Exchange-participating health benefits plan or other 
than through such a plan. 
(2) EMPLOYER
REQUIRED
CONTRIBUTION.— 
The employer timely pays to the issuer of such cov-
erage an amount not less than the employer required 
contribution specified in subsection (b) for such cov-
erage. 
(3) PROVISION
OF
INFORMATION.—The em-
ployer provides the Health Choices Commissioner, 
the Secretary of Labor, the Secretary of Health and 
Human Services, and the Secretary of the Treasury, 
as applicable, with such information as the Commis-
sioner may require to ascertain compliance with the 
requirements of this section, including the following: 
(A) The name, date, and employer identi-
fication number of the employer. 
(B) A certification as to whether the em-
ployer offers to its full-time employees (and 
their dependents) the opportunity to enroll in a 
qualified health benefits plan or a current em-
ployment-based health plan (within the meaning 
of section 202(b)). 
(C) If the employer certifies that the em-
ployer did offer to its full-time employees (and 
their dependents) the opportunity to so enroll—
277 
(i) the months during the calendar 
year for which such coverage was available; 
and 
(ii) the monthly premium for the low-
est cost option in each of the enrollment 
categories under each such plan offered to 
employees. 
(D) The name, address, and TIN of each 
full-time employee during the calendar year and 
the months (if any) during which such employee 
(and any dependents) were covered under any 
such plans. 
(4) AUTOENROLLMENT
OF
EMPLOYEES.—The 
employer provides for autoenrollment of the em-
ployee in accordance with subsection (c). 
This subsection shall supersede any law of a State which 
would prevent automatic payroll deduction of employee 
contributions to an employment-based health plan. 
(b) REDUCTION OF EMPLOYEE PREMIUMS THROUGH 
MINIMUM EMPLOYER CONTRIBUTION.— 
(1) FULL-TIME
EMPLOYEES.—The minimum 
employer contribution described in this subsection 
for coverage of a full-time employee (and, if any, the 
employee’s spouse and qualifying children (as de-
fined in section 152(c) of the Internal Revenue Code
278 
of 1986)) under a qualified health benefits plan (or 
current employment-based health plan) is equal to— 
(A) in case of individual coverage, not less 
than 72.5 percent of the applicable premium 
(as defined in section 4980B(f)(4) of such 
Code, subject to paragraph (2)) of the lowest 
cost plan offered by the employer that is a 
qualified health benefits plan (or is such cur-
rent employment-based health plan); and 
(B) in the case of family coverage which 
includes coverage of such spouse and children, 
not less 65 percent of such applicable premium 
of such lowest cost plan. 
(2) APPLICABLE PREMIUM FOR EXCHANGE COV-
ERAGE.—In this subtitle, the amount of the applica-
ble premium of the lowest cost plan with respect to 
coverage of an employee under an Exchange-partici-
pating health benefits plan is the reference premium 
amount under section 343(c) for individual coverage 
(or, if elected, family coverage) for the premium rat-
ing area in which the individual or family resides. 
(3) MINIMUM
EMPLOYER
CONTRIBUTION
FOR 
EMPLOYEES
OTHER
THAN
FULL-TIME
EMPLOY-
EES.—In the case of coverage for an employee who 
is not a full-time employee, the amount of the min-
279 
imum employer contribution under this subsection 
shall be a proportion (as determined in accordance 
with rules of the Health Choices Commissioner, the 
Secretary of Labor, the Secretary of Health and 
Human Services, and the Secretary of the Treasury, 
as applicable) of the minimum employer contribution 
under this subsection with respect to a full-time em-
ployee that reflects the proportion of— 
(A) the average weekly hours of employ-
ment of the employee by the employer, to 
(B) the minimum weekly hours specified 
by the Commissioner for an employee to be a 
full-time employee. 
(4) SALARY REDUCTIONS NOT TREATED AS EM-
PLOYER CONTRIBUTIONS.—For purposes of this sec-
tion, any contribution on behalf of an employee with 
respect to which there is a corresponding reduction 
in the compensation of the employee shall not be 
treated as an amount paid by the employer. 
(c) AUTOMATIC ENROLLMENT FOR EMPLOYER SPON-
SORED HEALTH BENEFITS.— 
(1) IN GENERAL.—The requirement of this sub-
section with respect to an employer and an employee 
is that the employer automatically enroll such em-
ployee into the employment-based health benefits
281 
by the average employee to whom the automatic 
enrollment requirement applies. 
(B) INCLUSION
OF
SPECIFIC
INFORMA-
TION.—The written notice under subparagraph 
(A) must explain an employee’s right to opt out 
of being automatically enrolled in a plan and in 
the case that more than one level of benefits or 
employee premium level is offered by the em-
ployer involved, the notice must explain which 
level of benefits and employee premium level the 
employee will be automatically enrolled in the 
absence of an affirmative election by the em-
ployee. 
SEC. 413. EMPLOYER CONTRIBUTIONS IN LIEU OF COV-
ERAGE. 
(a) IN GENERAL.—A contribution is made in accord-
ance with this section with respect to an employee if such 
contribution is equal to an amount equal to 8 percent of 
the average wages paid by the employer during the period 
of enrollment (determined by taking into account all em-
ployees of the employer and in such manner as the Com-
missioner provides, including rules providing for the ap-
propriate aggregation of related employers) but not to ex-
ceed the minimum employer contribution described in sec-
tion 412(b)(1)(A). Any such contribution—
282 
(1) shall be paid to the Health Choices Com-
missioner for deposit into the Health Insurance Ex-
change Trust Fund; and 
(2) shall not be applied against the premium of 
the employee under the Exchange-participating 
health benefits plan in which the employee is en-
rolled. 
(b) SPECIAL RULES FOR SMALL EMPLOYERS.— 
(1) IN GENERAL.—In the case of any employer 
who is a small employer for any calendar year, sub-
section (a) shall be applied by substituting the appli-
cable percentage determined in accordance with the 
following table for ‘‘8 percent’’: 
If the annual payroll of such employer for 
the preceding calendar year: 
The applicable 
percentage is: 
Does not exceed $500,000 .....................................
0 percent 
Exceeds $500,000, but does not exceed $585,000 
2 percent 
Exceeds $585,000, but does not exceed $670,000 
4 percent 
Exceeds $670,000, but does not exceed $750,000 
6 percent 
(2) SMALL EMPLOYER.—For purposes of this 
subsection, the term ‘‘small employer’’ means any 
employer for any calendar year if the annual payroll 
of such employer for the preceding calendar year 
does not exceed $750,000. 
(3) ANNUAL PAYROLL.—For purposes of this 
paragraph, the term ‘‘annual payroll’’ means, with 
respect to any employer for any calendar year, the
283 
aggregate wages paid by the employer during such 
calendar year. 
(4) AGGREGATION RULES.—Related employers 
and predecessors shall be treated as a single em-
ployer for purposes of this subsection. 
SEC. 414. AUTHORITY RELATED TO IMPROPER STEERING. 
The Health Choices Commissioner (in coordination 
with the Secretary of Labor, the Secretary of Health and 
Human Services, and the Secretary of the Treasury) shall 
have authority to set standards for determining whether 
employers or insurers are undertaking any actions to af-
fect the risk pool within the Health Insurance Exchange 
by inducing individuals to decline coverage under a quali-
fied health benefits plan (or current employment-based 
health plan (within the meaning of section 202(b)) offered 
by the employer and instead to enroll in an Exchange-par-
ticipating health benefits plan. An employer violating such 
standards shall be treated as not meeting the require-
ments of this section. 
SEC. 415. IMPACT STUDY ON EMPLOYER RESPONSIBILITY 
REQUIREMENTS. 
(a) IN GENERAL.—The Secretary of Labor shall con-
duct a study to examine the effect of the exemptions under 
section 512(a) and coverage thresholds under this division 
(in this section referred to collectively as ‘‘employer re-
284 
sponsibility requirements’’) on employment-based health 
plan sponsorship, generally and within specific industries, 
and the effect of such requirements and thresholds on em-
ployers, employment-based health plans, and employees in 
each industry. 
(b) ANNUAL REPORT.—The Secretary of Labor an-
nually shall submit to Congress a report on findings on 
how employer responsibility requirements have impacted 
and are likely to impact employers, plans, and employees 
during the previous year and projected trends. 
(c) LEGISLATIVE
RECOMMENDATIONS.—No later 
than January 1, 2012, and on an annual basis thereafter, 
the Secretary of Labor shall submit legislative rec-
ommendations to Congress to modify the employer respon-
sibility requirements if the Secretary determines that the 
requirements are detrimentally affecting or will detrimen-
tally affect employer plan sponsorship or otherwise cre-
ating inequities among employers, health plans, and em-
ployees. The Secretary may also submit such recommenda-
tions as the Secretary determines necessary to improve 
and strengthen employment-based health plan sponsor-
ship, employer responsibility, and related proposals that 
would enhance the delivery of health care benefits between 
employers and employees.
285 
SEC. 416. STUDY ON EMPLOYER HARDSHIP EXEMPTION. 
(a) IN GENERAL.—The Secretary of Labor together 
with the Secretary of Treasury, the Secretary of Health 
and Human Services, and the Commissioner, shall conduct 
a study to examine the impact of the employer responsi-
bility requirements described in section 415(a) and make 
a recommendation to Congress about whether an employer 
hardship exemption would be appropriate. 
(b) ITEMS INCLUDED IN STUDY.—Within such study 
the Secretaries and Commissioner shall examine cases 
where such employer responsibility requirements may pose 
a particular hardship, and specifically look at employers 
by industry, profit margin, length of time in business, and 
size. In this examination, the economic conditions shall be 
considered, including the rate of increase in business costs, 
the availability of short-term credit lines, and abilities to 
restructure debt. In addition, the study shall examine the 
impact an employer hardship waiver could have on employ-
ees. 
(c) REPORT.—Not later than January 1, 2012, the 
Secretaries and Commissioner shall report to Congress on 
their findings and make a recommendation regarding the 
need or lack of need for a partial or complete employer 
hardship waiver. The Secretaries and Commissioner may 
also submit recommendations about the criteria Congress 
should include when developing eligibility requirements for
286 
the employer hardship waiver and what safeguards are 
necessary to protect the employees of that employer. 
PART 2—SATISFACTION OF HEALTH COVERAGE 
PARTICIPATION REQUIREMENTS 
SEC. 421. SATISFACTION OF HEALTH COVERAGE PARTICI-
PATION REQUIREMENTS UNDER THE EM-
PLOYEE 
RETIREMENT 
INCOME 
SECURITY 
ACT OF 1974. 
(a) IN GENERAL.—Subtitle B of title I of the Em-
ployee Retirement Income Security Act of 1974 is amend-
ed by adding at the end the following new part: 
‘‘PART 8—NATIONAL HEALTH COVERAGE 
PARTICIPATION REQUIREMENTS 
‘‘SEC. 801. ELECTION OF EMPLOYER TO BE SUBJECT TO NA-
TIONAL HEALTH COVERAGE PARTICIPATION 
REQUIREMENTS. 
‘‘(a) IN GENERAL.—An employer may make an elec-
tion with the Secretary to be subject to the health coverage 
participation requirements. 
‘‘(b) TIME AND MANNER.—An election under sub-
section (a) may be made at such time and in such form 
and manner as the Secretary may prescribe.
287 
‘‘SEC. 802. TREATMENT OF COVERAGE RESULTING FROM 
ELECTION. 
‘‘(a) IN GENERAL.—If an employer makes an election 
to the Secretary under section 801— 
‘‘(1) such election shall be treated as the estab-
lishment and maintenance of a group health plan (as 
defined in section 733(a)) for purposes of this title, 
subject to section 251 of the Affordable Health Care 
for America Act; and 
‘‘(2) the health coverage participation require-
ments shall be deemed to be included as terms and 
conditions of such plan. 
‘‘(b) PERIODIC INVESTIGATIONS TO DISCOVER NON-
COMPLIANCE.—The Secretary shall regularly audit a rep-
resentative sampling of employers and group health plans 
and conduct investigations and other activities under sec-
tion 504 with respect to such sampling of plans so as to 
discover noncompliance with the health coverage participa-
tion requirements in connection with such plans. The Sec-
retary shall communicate findings of noncompliance made 
by the Secretary under this subsection to the Secretary 
of the Treasury and the Health Choices Commissioner. 
The Secretary shall take such timely enforcement action 
as appropriate to achieve compliance. 
‘‘(c) RECORDKEEPING.—To facilitate the audits de-
scribed in subsection (b), the Secretary shall promulgate
288 
recordkeeping requirements for employers to account for 
both employees of the employer and individuals whom the 
employer has not treated as employees of the employer but 
with whom the employer, in the course of its trade or busi-
ness, has engaged for the performance of labor or services. 
The scope and content of such recordkeeping requirements 
shall be determined by the Secretary and shall be designed 
to ensure that employees who are not properly treated as 
such may be identified and properly treated. 
‘‘SEC. 803. HEALTH COVERAGE PARTICIPATION REQUIRE-
MENTS. 
‘‘For purposes of this part, the term ‘health coverage 
participation requirements’ means the requirements of 
part 1 of subtitle B of title IV of division A of (as in effect 
on the date of the enactment of such Act). 
‘‘SEC. 804. RULES FOR APPLYING REQUIREMENTS. 
‘‘(a) AFFILIATED GROUPS.—In the case of any em-
ployer which is part of a group of employers who are treat-
ed as a single employer under subsection (b), (c), (m), or 
(o) of section 414 of the Internal Revenue Code of 1986, 
the election under section 801 shall be made by such em-
ployer as the Secretary may provide. Any such election, 
once made, shall apply to all members of such group.
289 
‘‘(b) SEPARATE ELECTIONS.—Under regulations pre-
scribed by the Secretary, separate elections may be made 
under section 801 with respect to— 
‘‘(1) separate lines of business, and 
‘‘(2) full-time employees and employees who are 
not full-time employees. 
‘‘SEC. 805. TERMINATION OF ELECTION IN CASES OF SUB-
STANTIAL NONCOMPLIANCE. 
‘‘The Secretary may terminate the election of any em-
ployer under section 801 if the Secretary (in coordination 
with the Health Choices Commissioner) determines that 
such employer is in substantial noncompliance with the 
health coverage participation requirements and shall refer 
any such determination to the Secretary of the Treasury 
as appropriate. 
‘‘SEC. 806. REGULATIONS. 
‘‘The Secretary may promulgate such regulations as 
may be necessary or appropriate to carry out the provi-
sions of this part, in accordance with section 424(a) of 
the Affordable Health Care for America Act. The Sec-
retary may promulgate any interim final rules as the Sec-
retary determines are appropriate to carry out this part.’’. 
(b) ENFORCEMENT OF HEALTH COVERAGE PARTICI-
PATION REQUIREMENTS.—Section 502 of such Act (29 
U.S.C. 1132) is amended—
290 
(1) in subsection (a)(6), by striking ‘‘para-
graph’’ and all that follows through ‘‘subsection (c)’’ 
and inserting ‘‘paragraph (2), (4), (5), (6), (7), (8), 
(9), (10), or (11) of subsection (c)’’; and 
(2) in subsection (c), by redesignating the sec-
ond paragraph (10) as paragraph (12) and by in-
serting after the first paragraph (10) the following 
new paragraph: 
‘‘(11) HEALTH COVERAGE PARTICIPATION RE-
QUIREMENTS.— 
‘‘(A) CIVIL
PENALTIES.—In the case of 
any employer who fails (during any period with 
respect to which an election under section 
801(a) is in effect) to satisfy the health cov-
erage participation requirements with respect to 
any employee, the Secretary may assess a civil 
penalty against the employer of $100 for each 
day in the period beginning on the date such 
failure first occurs and ending on the date such 
failure is corrected. 
‘‘(B) HEALTH
COVERAGE
PARTICIPATION 
REQUIREMENTS.—For purposes of this para-
graph, the term ‘health coverage participation 
requirements’ has the meaning provided in sec-
tion 803.
291 
‘‘(C) LIMITATIONS ON AMOUNT OF PEN-
ALTY.— 
‘‘(i) PENALTY NOT TO APPLY WHERE 
FAILURE
NOT
DISCOVERED
EXERCISING 
REASONABLE
DILIGENCE.—No 
penalty 
shall be assessed under subparagraph (A) 
with respect to any failure during any pe-
riod for which it is established to the satis-
faction of the Secretary that the employer 
did not know, or exercising reasonable dili-
gence would not have known, that such 
failure existed. 
‘‘(ii) PENALTY
NOT
TO
APPLY
TO 
FAILURES CORRECTED WITHIN 30 DAYS.— 
No penalty shall be assessed under sub-
paragraph (A) with respect to any failure 
if— 
‘‘(I) such failure was due to rea-
sonable cause and not to willful ne-
glect, and 
‘‘(II) such failure is corrected 
during the 30-day period beginning on 
the 1st date that the employer knew, 
or 
exercising 
reasonable 
diligence
292 
would have known, that such failure 
existed. 
‘‘(iii) OVERALL LIMITATION FOR UN-
INTENTIONAL FAILURES.—In the case of 
failures which are due to reasonable cause 
and not to willful neglect, the penalty as-
sessed under subparagraph (A) for failures 
during any 1-year period shall not exceed 
the amount equal to the lesser of— 
‘‘(I) 10 percent of the aggregate 
amount paid or incurred by the em-
ployer (or predecessor employer) dur-
ing the preceding 1-year period for 
group health plans, or 
‘‘(II) $500,000. 
‘‘(D) ADVANCE NOTIFICATION OF FAILURE 
PRIOR TO ASSESSMENT.—Before a reasonable 
time prior to the assessment of any penalty 
under this paragraph with respect to any failure 
by an employer, the Secretary shall inform the 
employer in writing of such failure and shall 
provide the employer information regarding ef-
forts and procedures which may be undertaken 
by the employer to correct such failure.
293 
‘‘(E) COORDINATION WITH EXCISE TAX.— 
Under regulations prescribed in accordance 
with section 424 of the Affordable Health Care 
for America Act, the Secretary and the Sec-
retary of the Treasury shall coordinate the as-
sessment of penalties under this section in con-
nection with failures to satisfy health coverage 
participation requirements with the imposition 
of excise taxes on such failures under section 
4980H(b) of the Internal Revenue Code of 
1986 so as to avoid duplication of penalties 
with respect to such failures. 
‘‘(F) DEPOSIT OF PENALTY COLLECTED.— 
Any amount of penalty collected under this 
paragraph shall be deposited as miscellaneous 
receipts in the Treasury of the United States.’’. 
(c) CLERICAL AMENDMENTS.—The table of contents 
in section 1 of such Act is amended by inserting after the 
item relating to section 734 the following new items: 
‘‘PART 8—NATIONAL HEALTH COVERAGE PARTICIPATION REQUIREMENTS 
‘‘Sec. 801. Election of employer to be subject to national health coverage par-
ticipation requirements. 
‘‘Sec. 802. Treatment of coverage resulting from election. 
‘‘Sec. 803. Health coverage participation requirements. 
‘‘Sec. 804. Rules for applying requirements. 
‘‘Sec. 805. Termination of election in cases of substantial noncompliance. 
‘‘Sec. 806. Regulations.’’.
294 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to periods beginning after Decem-
ber 31, 2012. 
SEC. 422. SATISFACTION OF HEALTH COVERAGE PARTICI-
PATION REQUIREMENTS UNDER THE INTER-
NAL REVENUE CODE OF 1986. 
(a) FAILURE TO ELECT, OR SUBSTANTIALLY COM-
PLY WITH, HEALTH COVERAGE PARTICIPATION RE-
QUIREMENTS.—For employment tax on employers who fail 
to elect, or substantially comply with, the health coverage 
participation requirements described in part 1, see section 
3111(c) of the Internal Revenue Code of 1986 (as added 
by section 512 of this Act). 
(b) OTHER FAILURES.—For excise tax on other fail-
ures of electing employers to comply with such require-
ments, see section 4980H of the Internal Revenue Code 
of 1986 (as added by section 511 of this Act). 
SEC. 423. SATISFACTION OF HEALTH COVERAGE PARTICI-
PATION REQUIREMENTS UNDER THE PUBLIC 
HEALTH SERVICE ACT. 
(a) IN GENERAL.—Part C of title XXVII of the Pub-
lic Health Service Act is amended by adding at the end 
the following new section:
295 
‘‘SEC. 2793. NATIONAL HEALTH COVERAGE PARTICIPATION 
REQUIREMENTS. 
‘‘(a) ELECTION OF EMPLOYER TO BE SUBJECT TO 
NATIONAL HEALTH COVERAGE PARTICIPATION REQUIRE-
MENTS.— 
‘‘(1) IN GENERAL.—An employer may make an 
election with the Secretary to be subject to the 
health coverage participation requirements. 
‘‘(2) TIME AND MANNER.—An election under 
paragraph (1) may be made at such time and in 
such form and manner as the Secretary may pre-
scribe. 
‘‘(b) TREATMENT OF COVERAGE RESULTING FROM 
ELECTION.— 
‘‘(1) IN GENERAL.—If an employer makes an 
election to the Secretary under subsection (a)— 
‘‘(A) such election shall be treated as the 
establishment and maintenance of a group 
health plan for purposes of this title, subject to 
section 251 of the Affordable Health Care for 
America Act; and 
‘‘(B) the health coverage participation re-
quirements shall be deemed to be included as 
terms and conditions of such plan. 
‘‘(2) PERIODIC INVESTIGATIONS TO DETERMINE 
COMPLIANCE WITH HEALTH COVERAGE PARTICIPA-
296 
TION
REQUIREMENTS.—The Secretary shall regu-
larly audit a representative sampling of employers 
and conduct investigations and other activities with 
respect to such sampling of employers so as to dis-
cover noncompliance with the health coverage par-
ticipation requirements in connection with such em-
ployers (during any period with respect to which an 
election under subsection (a) is in effect). The Sec-
retary shall communicate findings of noncompliance 
made by the Secretary under this subsection to the 
Secretary of the Treasury and the Health Choices 
Commissioner. The Secretary shall take such timely 
enforcement action as appropriate to achieve compli-
ance. 
‘‘(3) RECORDKEEPING.—To facilitate the audits 
described in subsection (b), the Secretary shall pro-
mulgate recordkeeping requirements for employers 
to account for both employees of the employer and 
individuals whom the employer has not treated as 
employees of the employer but with whom the em-
ployer, in the course of its trade or business, has en-
gaged for the performance of labor or services. The 
scope and content of such recordkeeping require-
ments shall be determined by the Secretary and 
shall be designed to ensure that employees who are
297 
not properly treated as such may be identified and 
properly treated. 
‘‘(c) HEALTH COVERAGE PARTICIPATION REQUIRE-
MENTS.—For purposes of this section, the term ‘health 
coverage participation requirements’ means the require-
ments of part 1 of subtitle B of title IV of division A of 
the (as in effect on the date of the enactment of this sec-
tion). 
‘‘(d) SEPARATE ELECTIONS.—Under regulations pre-
scribed by the Secretary, separate elections may be made 
under subsection (a) with respect to full-time employees 
and employees who are not full-time employees. 
‘‘(e) TERMINATION OF ELECTION IN CASES OF SUB-
STANTIAL NONCOMPLIANCE.—The Secretary may termi-
nate the election of any employer under subsection (a) if 
the Secretary (in coordination with the Health Choices 
Commissioner) determines that such employer is in sub-
stantial noncompliance with the health coverage participa-
tion requirements and shall refer any such determination 
to the Secretary of the Treasury as appropriate. 
‘‘(f) ENFORCEMENT OF HEALTH COVERAGE PAR-
TICIPATION REQUIREMENTS.— 
‘‘(1) CIVIL PENALTIES.—In the case of any em-
ployer who fails (during any period with respect to 
which the election under subsection (a) is in effect)
298 
to satisfy the health coverage participation require-
ments with respect to any employee, the Secretary 
may assess a civil penalty against the employer of 
$100 for each day in the period beginning on the 
date such failure first occurs and ending on the date 
such failure is corrected. 
‘‘(2) LIMITATIONS ON AMOUNT OF PENALTY.— 
‘‘(A) PENALTY
NOT
TO
APPLY
WHERE 
FAILURE
NOT
DISCOVERED
EXERCISING
REA-
SONABLE DILIGENCE.—No penalty shall be as-
sessed under paragraph (1) with respect to any 
failure during any period for which it is estab-
lished to the satisfaction of the Secretary that 
the employer did not know, or exercising rea-
sonable diligence would not have known, that 
such failure existed. 
‘‘(B) PENALTY NOT TO APPLY TO FAIL-
URES CORRECTED WITHIN 30 DAYS.—No pen-
alty shall be assessed under paragraph (1) with 
respect to any failure if— 
‘‘(i) such failure was due to reason-
able cause and not to willful neglect, and 
‘‘(ii) such failure is corrected during 
the 30-day period beginning on the 1st 
date that the employer knew, or exercising
299 
reasonable diligence would have known, 
that such failure existed. 
‘‘(C) OVERALL LIMITATION FOR UNINTEN-
TIONAL
FAILURES.—In the case of failures 
which are due to reasonable cause and not to 
willful neglect, the penalty assessed under para-
graph (1) for failures during any 1-year period 
shall not exceed the amount equal to the lesser 
of— 
‘‘(i) 10 percent of the aggregate 
amount paid or incurred by the employer 
(or predecessor employer) during the pre-
ceding taxable year for group health plans, 
or 
‘‘(ii) $500,000. 
‘‘(3) ADVANCE
NOTIFICATION
OF
FAILURE 
PRIOR TO ASSESSMENT.—Before a reasonable time 
prior to the assessment of any penalty under para-
graph (1) with respect to any failure by an em-
ployer, the Secretary shall inform the employer in 
writing of such failure and shall provide the em-
ployer information regarding efforts and procedures 
which may be undertaken by the employer to correct 
such failure.
300 
‘‘(4) ACTIONS
TO
ENFORCE
ASSESSMENTS.— 
The Secretary may bring a civil action in any Dis-
trict Court of the United States to collect any civil 
penalty under this subsection. 
‘‘(5) COORDINATION
WITH
EXCISE
TAX.— 
Under regulations prescribed in accordance with sec-
tion 424 of the Affordable Health Care for America 
Act, the Secretary and the Secretary of the Treasury 
shall coordinate the assessment of penalties under 
paragraph (1) in connection with failures to satisfy 
health coverage participation requirements with the 
imposition of excise taxes on such failures under sec-
tion 4980H(b) of the Internal Revenue Code of 
1986 so as to avoid duplication of penalties with re-
spect to such failures. 
‘‘(6) DEPOSIT OF PENALTY COLLECTED.—Any 
amount of penalty collected under this subsection 
shall be deposited as miscellaneous receipts in the 
Treasury of the United States. 
‘‘(g) REGULATIONS.—The Secretary may promulgate 
such regulations as may be necessary or appropriate to 
carry out the provisions of this section, in accordance with 
section 424(a) of the Affordable Health Care for America 
Act. The Secretary may promulgate any interim final rules
301 
as the Secretary determines are appropriate to carry out 
this section.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
subsection (a) shall apply to periods beginning after De-
cember 31, 2012. 
SEC. 424. ADDITIONAL RULES RELATING TO HEALTH COV-
ERAGE PARTICIPATION REQUIREMENTS. 
(a) ASSURING COORDINATION.—The officers con-
sisting of the Secretary of Labor, the Secretary of the 
Treasury, the Secretary of Health and Human Services, 
and the Health Choices Commissioner shall ensure, 
through the execution of an interagency memorandum of 
understanding among such officers, that— 
(1) regulations, rulings, and interpretations 
issued by such officers relating to the same matter 
over which two or more of such officers have respon-
sibility under subpart B of part 8 of subtitle B of 
title I of the Employee Retirement Income Security 
Act of 1974, section 4980H of the Internal Revenue 
Code of 1986, and section 2793 of the Public Health 
Service Act are administered so as to have the same 
effect at all times; and 
(2) coordination of policies relating to enforcing 
the same requirements through such officers in 
order to have a coordinated enforcement strategy
302 
that avoids duplication of enforcement efforts and 
assigns priorities in enforcement. 
(b) MULTIEMPLOYER PLANS.—In the case of a group 
health plan that is a multiemployer plan (as defined in 
section 3(37) of the Employee Retirement Income Secu-
rity Act of 1974), the regulations prescribed in accordance 
with subsection (a) by the officers referred to in subsection 
(a) shall provide for the application of the health coverage 
participation requirements to the plan sponsor and con-
tributing employers of such plan. For purposes of this di-
vision, contributions made pursuant to a collective bar-
gaining agreement or other agreement to such a group 
health plan shall be treated as amounts paid by the em-
ployer.
303 
TITLE V—AMENDMENTS TO IN-
TERNAL REVENUE CODE OF 
1986 
Subtitle A—Provisions Relating to 
Health Care Reform 
PART 1—SHARED RESPONSIBILITY 
Subpart A—Individual Responsibility 
SEC. 501. TAX ON INDIVIDUALS WITHOUT ACCEPTABLE 
HEALTH CARE COVERAGE. 
(a) IN GENERAL.—Subchapter A of chapter 1 of the 
Internal Revenue Code of 1986 is amended by adding at 
the end the following new part: 
‘‘PART VIII—HEALTH CARE RELATED TAXES 
‘‘SUBPART A. TAX ON INDIVIDUALS WITHOUT ACCEPTABLE HEALTH CARE 
COVERAGE. 
‘‘Subpart A—Tax on Individuals Without Acceptable 
Health Care Coverage 
‘‘Sec. 59B. Tax on individuals without acceptable health care coverage. 
‘‘SEC. 59B. TAX ON INDIVIDUALS WITHOUT ACCEPTABLE 
HEALTH CARE COVERAGE. 
‘‘(a) TAX IMPOSED.—In the case of any individual 
who does not meet the requirements of subsection (d) at 
any time during the taxable year, there is hereby imposed 
a tax equal to 2.5 percent of the excess of— 
‘‘(1) the taxpayer’s modified adjusted gross in-
come for the taxable year, over
304 
‘‘(2) the amount of gross income specified in 
section 6012(a)(1) with respect to the taxpayer. 
‘‘(b) LIMITATIONS.— 
‘‘(1) TAX LIMITED TO AVERAGE PREMIUM.— 
‘‘(A) IN
GENERAL.—The tax imposed 
under subsection (a) with respect to any tax-
payer for any taxable year shall not exceed the 
applicable national average premium for such 
taxable year. 
‘‘(B) APPLICABLE
NATIONAL
AVERAGE 
PREMIUM.— 
‘‘(i) IN
GENERAL.—For purposes of 
subparagraph (A), the ‘applicable national 
average premium’ means, with respect to 
any taxable year, the average premium (as 
determined by the Secretary, in coordina-
tion with the Health Choices Commis-
sioner) for self-only coverage under a basic 
plan which is offered in a Health Insur-
ance Exchange for the calendar year in 
which such taxable year begins. 
‘‘(ii) FAILURE TO PROVIDE COVERAGE 
FOR MORE THAN ONE INDIVIDUAL.—In the 
case of any taxpayer who fails to meet the 
requirements of subsection (d) with respect
305 
to more than one individual during the tax-
able year, clause (i) shall be applied by 
substituting ‘family coverage’ for ‘self-only 
coverage’. 
‘‘(2) PRORATION FOR PART YEAR FAILURES.— 
The tax imposed under subsection (a) with respect 
to any taxpayer for any taxable year shall not exceed 
the amount which bears the same ratio to the 
amount of tax so imposed (determined without re-
gard to this paragraph and after application of para-
graph (1)) as— 
‘‘(A) the aggregate periods during such 
taxable year for which such individual failed to 
meet the requirements of subsection (d), bears 
to 
‘‘(B) the entire taxable year. 
‘‘(c) EXCEPTIONS.— 
‘‘(1) DEPENDENTS.—Subsection (a) shall not 
apply to any individual for any taxable year if a de-
duction is allowable under section 151 with respect 
to such individual to another taxpayer for any tax-
able year beginning in the same calendar year as 
such taxable year.
306 
‘‘(2) NONRESIDENT
ALIENS.—Subsection (a) 
shall not apply to any individual who is a non-
resident alien. 
‘‘(3) INDIVIDUALS RESIDING OUTSIDE UNITED 
STATES.—Any qualified individual (as defined in 
section 911(d)) (and any qualifying child residing 
with such individual) shall be treated for purposes of 
this section as covered by acceptable coverage during 
the period described in subparagraph (A) or (B) of 
section 911(d)(1), whichever is applicable. 
‘‘(4) INDIVIDUALS
RESIDING
IN
POSSESSIONS 
OF THE UNITED STATES.—Any individual who is a 
bona fide resident of any possession of the United 
States (as determined under section 937(a)) for any 
taxable year (and any qualifying child residing with 
such individual) shall be treated for purposes of this 
section as covered by acceptable coverage during 
such taxable year. 
‘‘(5) RELIGIOUS CONSCIENCE EXEMPTION.— 
‘‘(A) IN
GENERAL.—Subsection (a) shall 
not apply to any individual (and any qualifying 
child residing with such individual) for any pe-
riod if such individual has in effect an exemp-
tion which certifies that such individual is a 
member of a recognized religious sect or divi-
307 
sion thereof described in section 1402(g)(1) and 
an adherent of established tenets or teachings 
of such sect or division as described in such sec-
tion. 
‘‘(B) EXEMPTION.—An application for the 
exemption described in subparagraph (A) shall 
be filed with the Secretary at such time and in 
such form and manner as the Secretary may 
prescribe. The Secretary may treat an applica-
tion for exemption under section 1402(g)(1) as 
an application for exemption under this section, 
or may otherwise coordinate applications under 
such sections, as the Secretary determines ap-
propriate. Any such exemption granted by the 
Secretary shall be effective for such period as 
the Secretary determines appropriate. 
‘‘(d) ACCEPTABLE COVERAGE REQUIREMENT.— 
‘‘(1) IN GENERAL.—The requirements of this 
subsection are met with respect to any individual for 
any period if such individual (and each qualifying 
child of such individual) is covered by acceptable 
coverage at all times during such period. 
‘‘(2) ACCEPTABLE
COVERAGE.—For purposes 
of this section, the term ‘acceptable coverage’ means 
any of the following:
308 
‘‘(A) QUALIFIED HEALTH BENEFITS PLAN 
COVERAGE.—Coverage under a qualified health 
benefits plan (as defined in section 100(c) of 
the Affordable Health Care for America Act). 
‘‘(B) GRANDFATHERED
HEALTH
INSUR-
ANCE
COVERAGE; COVERAGE
UNDER
GRAND-
FATHERED
EMPLOYMENT-BASED
HEALTH 
PLAN.—Coverage under a grandfathered health 
insurance coverage (as defined in subsection (a) 
of section 202 of the Affordable Health Care 
for America Act) or under a current employ-
ment-based health plan (within the meaning of 
subsection (b) of such section). 
‘‘(C) MEDICARE.—Coverage under part A 
of title XVIII of the Social Security Act. 
‘‘(D) MEDICAID.—Coverage for medical as-
sistance under title XIX of the Social Security 
Act. 
‘‘(E) MEMBERS OF THE ARMED FORCES 
AND
DEPENDENTS
(INCLUDING
TRICARE).— 
Coverage under chapter 55 of title 10, United 
States Code, including similar coverage fur-
nished under section 1781 of title 38 of such 
Code.
309 
‘‘(F) VA.—Coverage under the veteran’s 
health care program under chapter 17 of title 
38, United States Code. 
‘‘(G) MEMBERS
OF
INDIAN
TRIBES.— 
Health care services made available through the 
Indian Health Service, a tribal organization (as 
defined in section 4 of the Indian Health Care 
Improvement Act), or an urban Indian organi-
zation (as defined in such section) to members 
of an Indian tribe (as defined in such section). 
‘‘(H) 
OTHER
COVERAGE.—Such 
other 
health benefits coverage as the Secretary, in co-
ordination with the Health Choices Commis-
sioner, recognizes for purposes of this sub-
section. 
‘‘(e) OTHER DEFINITIONS AND SPECIAL RULES.— 
‘‘(1) QUALIFYING CHILD.—For purposes of this 
section, the term ‘qualifying child’ has the meaning 
given such term by section 152(c). With respect to 
any period during which health coverage for a child 
must be provided by an individual pursuant to a 
child support order, such child shall be treated as a 
qualifying child of such individual (and not as a 
qualifying child of any other individual).
310 
‘‘(2) BASIC PLAN.—For purposes of this sec-
tion, the term ‘basic plan’ has the meaning given 
such term under section 100(c) of the Affordable 
Health Care for America Act. 
‘‘(3) HEALTH
INSURANCE
EXCHANGE.—For 
purposes of this section, the term ‘Health Insurance 
Exchange’ has the meaning given such term under 
section 100(c) of the Affordable Health Care for 
America Act, including any State-based health insur-
ance exchange approved for operation under section 
308 of such Act. 
‘‘(4) FAMILY COVERAGE.—For purposes of this 
section, the term ‘family coverage’ means any cov-
erage other than self-only coverage. 
‘‘(5) MODIFIED
ADJUSTED
GROSS
INCOME.— 
For purposes of this section, the term ‘modified ad-
justed gross income’ means adjusted gross income 
increased by— 
‘‘(A) any amount excluded from gross in-
come under section 911, and 
‘‘(B) any amount of interest received or 
accrued by the taxpayer during the taxable year 
which is exempt from tax. 
‘‘(6) NOT TREATED AS TAX IMPOSED BY THIS 
CHAPTER
FOR
CERTAIN
PURPOSES.—The tax im-
311 
posed under this section shall not be treated as tax 
imposed by this chapter for purposes of determining 
the amount of any credit under this chapter or for 
purposes of section 55. 
‘‘(f) REGULATIONS.—The Secretary shall prescribe 
such regulations or other guidance as may be necessary 
or appropriate to carry out the purposes of this section, 
including regulations or other guidance (developed in co-
ordination with the Health Choices Commissioner) which 
provide— 
‘‘(1) exemption from the tax imposed under 
subsection (a) in cases of de minimis lapses of ac-
ceptable coverage, and 
‘‘(2) a waiver of the application of subsection 
(a) in cases of hardship, including a process for ap-
plying for such a waiver.’’. 
(b) INFORMATION REPORTING.— 
(1) IN GENERAL.—Subpart B of part III of 
subchapter A of chapter 61 of such Code is amended 
by inserting after section 6050W the following new 
section: 
‘‘SEC. 6050X. RETURNS RELATING TO HEALTH INSURANCE 
COVERAGE. 
‘‘(a) REQUIREMENT OF REPORTING.—Every person 
who provides acceptable coverage (as defined in section
312 
59B(d)) to any individual during any calendar year shall, 
at such time as the Secretary may prescribe, make the 
return described in subsection (b) with respect to such in-
dividual. 
‘‘(b) FORM AND MANNER OF RETURNS.—A return 
is described in this subsection if such return— 
‘‘(1) is in such form as the Secretary may pre-
scribe, and 
‘‘(2) contains— 
‘‘(A) the name, address, and TIN of the 
primary insured and the name of each other in-
dividual obtaining coverage under the policy, 
‘‘(B) the period for which each such indi-
vidual was provided with the coverage referred 
to in subsection (a), and 
‘‘(C) such other information as the Sec-
retary may require. 
‘‘(c) STATEMENTS TO BE FURNISHED TO INDIVID-
UALS WITH RESPECT TO WHOM INFORMATION IS RE-
QUIRED.—Every person required to make a return under 
subsection (a) shall furnish to each primary insured whose 
name is required to be set forth in such return a written 
statement showing—
313 
‘‘(1) the name and address of the person re-
quired to make such return and the phone number 
of the information contact for such person, and 
‘‘(2) the information required to be shown on 
the return with respect to such individual. 
The written statement required under the preceding sen-
tence shall be furnished on or before January 31 of the 
year following the calendar year for which the return 
under subsection (a) is required to be made. 
‘‘(d) COVERAGE
PROVIDED
BY
GOVERNMENTAL 
UNITS.—In the case of coverage provided by any govern-
mental unit or any agency or instrumentality thereof, the 
officer or employee who enters into the agreement to pro-
vide such coverage (or the person appropriately designated 
for purposes of this section) shall make the returns and 
statements required by this section.’’. 
(2) PENALTY FOR FAILURE TO FILE.— 
(A) RETURN.—Subparagraph (B) of sec-
tion 6724(d)(1) of such Code is amended by 
striking ‘‘or’’ at the end of clause (xxii), by 
striking ‘‘and’’ at the end of clause (xxiii) and 
inserting ‘‘or’’, and by adding at the end the 
following new clause:
314 
‘‘(xxiv) section 6050X (relating to re-
turns relating to health insurance cov-
erage), and’’. 
(B) STATEMENT.—Paragraph (2) of sec-
tion 6724(d) of such Code is amended by strik-
ing ‘‘or’’ at the end of subparagraph (EE), by 
striking the period at the end of subparagraph 
(FF) and inserting ‘‘, or’’, and by inserting 
after subparagraph (FF) the following new sub-
paragraph: 
‘‘(GG) section 6050X (relating to returns 
relating to health insurance coverage).’’. 
(c) RETURN REQUIREMENT.—Subsection (a) of sec-
tion 6012 of such Code is amended by inserting after 
paragraph (9) the following new paragraph: 
‘‘(10) Every individual to whom section 59B(a) 
applies and who fails to meet the requirements of 
section 59B(d) with respect to such individual or 
any qualifying child (as defined in section 152(c)) of 
such individual.’’. 
(d) CLERICAL AMENDMENTS.— 
(1) The table of parts for subchapter A of chap-
ter 1 of the Internal Revenue Code of 1986 is 
amended by adding at the end the following new 
item: 
‘‘PART VIII. HEALTH CARE RELATED TAXES.’’.
316 
‘‘(1) IN GENERAL.—Subsection (b) shall apply 
to any employer with respect to whom an election 
under paragraph (2) is in effect. 
‘‘(2) TIME AND MANNER.—An employer may 
make an election under this paragraph at such time 
and in such form and manner as the Secretary may 
prescribe. 
‘‘(3) AFFILIATED GROUPS.—In the case of any 
employer which is part of a group of employers who 
are treated as a single employer under subsection 
(b), (c), (m), or (o) of section 414, the election 
under paragraph (2) shall be made by such person 
as the Secretary may provide. Any such election, 
once made, shall apply to all members of such 
group. 
‘‘(4) SEPARATE
ELECTIONS.—Under regula-
tions prescribed by the Secretary, separate elections 
may be made under paragraph (2) with respect to— 
‘‘(A) separate lines of business, and 
‘‘(B) full-time employees and employees 
who are not full-time employees. 
‘‘(5) TERMINATION OF ELECTION IN CASES OF 
SUBSTANTIAL
NONCOMPLIANCE.—The 
Secretary 
may terminate the election of any employer under 
paragraph (2) if the Secretary (in coordination with
317 
the Health Choices Commissioner) determines that 
such employer is in substantial noncompliance with 
the health coverage participation requirements. 
‘‘(b) EXCISE TAX WITH RESPECT TO FAILURE TO 
MEET HEALTH COVERAGE PARTICIPATION REQUIRE-
MENTS.— 
‘‘(1) IN GENERAL.—In the case of any employer 
who fails (during any period with respect to which 
the election under subsection (a) is in effect) to sat-
isfy the health coverage participation requirements 
with respect to any employee to whom such election 
applies, there is hereby imposed on each such failure 
with respect to each such employee a tax of $100 for 
each day in the period beginning on the date such 
failure first occurs and ending on the date such fail-
ure is corrected. 
‘‘(2) LIMITATIONS ON AMOUNT OF TAX.— 
‘‘(A) TAX NOT TO APPLY WHERE FAILURE 
NOT
DISCOVERED
EXERCISING
REASONABLE 
DILIGENCE.—No tax shall be imposed by para-
graph (1) on any failure during any period for 
which it is established to the satisfaction of the 
Secretary that the employer neither knew, nor 
exercising reasonable diligence would have 
known, that such failure existed.
318 
‘‘(B) TAX
NOT
TO
APPLY
TO
FAILURES 
CORRECTED WITHIN 30 DAYS.—No tax shall be 
imposed by paragraph (1) on any failure if— 
‘‘(i) such failure was due to reason-
able cause and not to willful neglect, and 
‘‘(ii) such failure is corrected during 
the 30-day period beginning on the 1st 
date that the employer knew, or exercising 
reasonable diligence would have known, 
that such failure existed. 
‘‘(C) OVERALL LIMITATION FOR UNINTEN-
TIONAL
FAILURES.—In the case of failures 
which are due to reasonable cause and not to 
willful neglect, the tax imposed by subsection 
(a) for failures during the taxable year of the 
employer shall not exceed the amount equal to 
the lesser of— 
‘‘(i) 10 percent of the aggregate 
amount paid or incurred by the employer 
(or predecessor employer) during the pre-
ceding taxable year for employment-based 
health plans, or 
‘‘(ii) $500,000. 
‘‘(D) COORDINATION
WITH
OTHER
EN-
FORCEMENT
PROVISIONS.—The tax imposed
319 
under paragraph (1) with respect to any failure 
shall be reduced (but not below zero) by the 
amount of any civil penalty collected under sec-
tion 502(c)(11) of the Employee Retirement In-
come Security Act of 1974 or section 2793(g) 
of the Public Health Service Act with respect to 
such failure. 
‘‘(c) HEALTH COVERAGE PARTICIPATION REQUIRE-
MENTS.—For purposes of this section, the term ‘health 
coverage participation requirements’ means the require-
ments of part I of subtitle B of title IV of the (as in effect 
on the date of the enactment of this section).’’. 
(b) CLERICAL AMENDMENT.—The table of sections 
for chapter 43 of such Code is amended by adding at the 
end the following new item: 
‘‘Sec. 4980H. Election with respect to health coverage participation require-
ments.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to periods beginning after Decem-
ber 31, 2012. 
SEC. 
512. 
HEALTH 
CARE 
CONTRIBUTIONS 
OF 
NON-
ELECTING EMPLOYERS. 
(a) IN GENERAL.—Section 3111 of the Internal Rev-
enue Code of 1986 is amended by redesignating subsection 
(c) as subsection (d) and by inserting after subsection (b) 
the following new subsection:
320 
‘‘(c) EMPLOYERS
ELECTING
NOT
TO
PROVIDE 
HEALTH BENEFITS.— 
‘‘(1) IN GENERAL.—In addition to other taxes, 
there is hereby imposed on every nonelecting em-
ployer an excise tax, with respect to having individ-
uals in his employ, equal to 8 percent of the wages 
(as defined in section 3121(a)) paid by him with re-
spect to employment (as defined in section 3121(b)). 
‘‘(2) SPECIAL
RULES
FOR
SMALL
EMPLOY-
ERS.— 
‘‘(A) IN GENERAL.—In the case of any em-
ployer who is small employer for any calendar 
year, paragraph (1) shall be applied by sub-
stituting the applicable percentage determined 
in accordance with the following table for ‘8 
percent’: 
‘‘If the annual payroll of such employer for 
the preceding calendar year: 
The applicable 
percentage is: 
Does not exceed $500,000 .....................................
0 percent 
Exceeds $500,000, but does not exceed $585,000 
2 percent 
Exceeds $585,000, but does not exceed $670,000 
4 percent 
Exceeds $670,000, but does not exceed $750,000 
6 percent 
‘‘(B) SMALL EMPLOYER.—For purposes of 
this paragraph, the term ‘small employer’ 
means any employer for any calendar year if 
the annual payroll of such employer for the pre-
ceding calendar year does not exceed $750,000.
321 
‘‘(C) ANNUAL PAYROLL.—For purposes of 
this paragraph, the term ‘annual payroll’ 
means, with respect to any employer for any 
calendar year, the aggregate wages (as defined 
in section 3121(a)) paid by him with respect to 
employment (as defined in section 3121(b)) 
during such calendar year. 
‘‘(3) NONELECTING EMPLOYER.—For purposes 
of paragraph (1), the term ‘nonelecting employer’ 
means any employer for any period with respect to 
which such employer does not have an election under 
section 4980H(a) in effect. 
‘‘(4) SPECIAL
RULE
FOR
SEPARATE
ELEC-
TIONS.—In the case of an employer who makes a 
separate election described in section 4980H(a)(4) 
for any period, paragraph (1) shall be applied for 
such period by taking into account only the wages 
paid to employees who are not subject to such elec-
tion. 
‘‘(5) AGGREGATION; PREDECESSORS.—For pur-
poses of this subsection— 
‘‘(A) all persons treated as a single em-
ployer under subsection (b), (c), (m), or (o) of 
section 414 shall be treated as 1 employer, and
322 
‘‘(B) any reference to any person shall be 
treated as including a reference to any prede-
cessor of such person.’’. 
(b) DEFINITIONS.—Section 3121 of such Code is 
amended by adding at the end the following new sub-
section: 
‘‘(aa) SPECIAL RULES
FOR TAX
ON EMPLOYERS 
ELECTING NOT TO PROVIDE HEALTH BENEFITS.—For 
purposes of section 3111(c)— 
‘‘(1) Paragraphs (1), (5), and (19) of sub-
section (b) shall not apply. 
‘‘(2) Paragraph (7) of subsection (b) shall apply 
by treating all services as not covered by the retire-
ment systems referred to in subparagraphs (C) and 
(F) thereof. 
‘‘(3) Subsection (e) shall not apply and the 
term ‘State’ shall include the District of Columbia.’’. 
(c) CONFORMING AMENDMENT.—Subsection (d) of 
section 3111 of such Code, as redesignated by this section, 
is amended by striking ‘‘this section’’ and inserting ‘‘sub-
sections (a) and (b)’’. 
(d) APPLICATION TO RAILROADS.— 
(1) IN GENERAL.—Section 3221 of such Code 
is amended by redesignating subsection (c) as sub-
323 
section (d) and by inserting after subsection (b) the 
following new subsection: 
‘‘(c) EMPLOYERS
ELECTING
NOT
TO
PROVIDE 
HEALTH BENEFITS.— 
‘‘(1) IN GENERAL.—In addition to other taxes, 
there is hereby imposed on every nonelecting em-
ployer an excise tax, with respect to having individ-
uals in his employ, equal to 8 percent of the com-
pensation paid during any calendar year by such em-
ployer for services rendered to such employer. 
‘‘(2) EXCEPTION
FOR
SMALL
EMPLOYERS.— 
Rules similar to the rules of section 3111(c)(2) shall 
apply for purposes of this subsection. 
‘‘(3) NONELECTING EMPLOYER.—For purposes 
of paragraph (1), the term ‘nonelecting employer’ 
means any employer for any period with respect to 
which such employer does not have an election under 
section 4980H(a) in effect. 
‘‘(4) SPECIAL
RULE
FOR
SEPARATE
ELEC-
TIONS.—In the case of an employer who makes a 
separate election described in section 4980H(a)(4) 
for any period, subsection (a) shall be applied for 
such period by taking into account only the com-
pensation paid to employees who are not subject to 
such election.’’.
324 
(2) DEFINITIONS.—Subsection (e) of section 
3231 of such Code is amended by adding at the end 
the following new paragraph: 
‘‘(13) SPECIAL RULES FOR TAX ON EMPLOYERS 
ELECTING NOT TO PROVIDE HEALTH BENEFITS.— 
For purposes of section 3221(c)— 
‘‘(A) Paragraph (1) shall be applied with-
out regard to the third sentence thereof. 
‘‘(B) Paragraph (2) shall not apply.’’. 
(3) CONFORMING AMENDMENT.—Subsection (d) 
of section 3221 of such Code, as redesignated by 
this section, is amended by striking ‘‘subsections (a) 
and (b), see section 3231(e)(2)’’ and inserting ‘‘this 
section, see paragraphs (2) and (13)(B) of section 
3231(e)’’. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to periods beginning after Decem-
ber 31, 2012. 
PART 2—CREDIT FOR SMALL BUSINESS 
EMPLOYEE HEALTH COVERAGE EXPENSES 
SEC. 
521. 
CREDIT 
FOR 
SMALL 
BUSINESS 
EMPLOYEE 
HEALTH COVERAGE EXPENSES. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of
325 
1986 (relating to business-related credits) is amended by 
adding at the end the following new section: 
‘‘SEC. 45R. SMALL BUSINESS EMPLOYEE HEALTH COV-
ERAGE CREDIT. 
‘‘(a) IN GENERAL.—For purposes of section 38, in 
the case of a qualified small employer, the small business 
employee health coverage credit determined under this sec-
tion for the taxable year is an amount equal to the applica-
ble percentage of the qualified employee health coverage 
expenses of such employer for such taxable year. 
‘‘(b) APPLICABLE PERCENTAGE.— 
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the applicable percentage is 50 percent. 
‘‘(2) PHASEOUT
BASED
ON
AVERAGE
COM-
PENSATION OF EMPLOYEES.—In the case of an em-
ployer whose average annual employee compensation 
for the taxable year exceeds $20,000, the percentage 
specified in paragraph (1) shall be reduced by a 
number of percentage points which bears the same 
ratio to 50 as such excess bears to $20,000. 
‘‘(c) LIMITATIONS.— 
‘‘(1) PHASEOUT BASED ON EMPLOYER SIZE.— 
In the case of an employer who employs more than 
10 qualified employees during the taxable year, the 
credit determined under subsection (a) shall be re-
326 
duced by an amount which bears the same ratio to 
the amount of such credit (determined without re-
gard to this paragraph and after the application of 
the other provisions of this section) as— 
‘‘(A) the excess of— 
‘‘(i) the number of qualified employees 
employed by the employer during the tax-
able year, over 
‘‘(ii) 10, bears to 
‘‘(B) 15. 
‘‘(2) CREDIT NOT ALLOWED WITH RESPECT TO 
CERTAIN HIGHLY COMPENSATED EMPLOYEES.—No 
credit shall be determined under subsection (a) with 
respect to qualified employee health coverage ex-
penses paid or incurred with respect to any employee 
for any taxable year if the aggregate compensation 
paid by the employer to such employee during such 
taxable year exceeds $80,000. 
‘‘(3) CREDIT ALLOWED FOR ONLY 2 TAXABLE 
YEARS.—No credit shall be determined under sub-
section (a) with respect to any employer for any tax-
able year unless the employer elects to have this sec-
tion apply for such taxable year. An employer may 
elect the application of this section with respect to 
not more than 2 taxable years.
327 
‘‘(d) QUALIFIED EMPLOYEE HEALTH COVERAGE EX-
PENSES.—For purposes of this section— 
‘‘(1) IN
GENERAL.—The term ‘qualified em-
ployee health coverage expenses’ means, with respect 
to any employer for any taxable year, the aggregate 
amount paid or incurred by such employer during 
such taxable year for coverage of any qualified em-
ployee of the employer (including any family cov-
erage which covers such employee) under qualified 
health coverage. 
‘‘(2) QUALIFIED
HEALTH
COVERAGE.—The 
term ‘qualified health coverage’ means acceptable 
coverage (as defined in section 59B(d)) which— 
‘‘(A) is provided pursuant to an election 
under section 4980H(a), and 
‘‘(B) satisfies the requirements referred to 
in section 4980H(c). 
‘‘(e) OTHER DEFINITIONS.—For purposes of this 
section— 
‘‘(1) QUALIFIED SMALL EMPLOYER.—For pur-
poses of this section, the term ‘qualified small em-
ployer’ means any employer for any taxable year 
if—
328 
‘‘(A) the number of qualified employees 
employed by such employer during the taxable 
year does not exceed 25, and 
‘‘(B) the average annual employee com-
pensation of such employer for such taxable 
year does not exceed the sum of the dollar 
amounts in effect under subsection (b)(2). 
‘‘(2) QUALIFIED EMPLOYEE.—The term ‘quali-
fied employee’ means any employee of an employer 
for any taxable year of the employer if such em-
ployee received at least $5,000 of compensation from 
such employer for services performed in the trade or 
business of such employer during such taxable year. 
‘‘(3) AVERAGE ANNUAL EMPLOYEE COMPENSA-
TION.—The term ‘average annual employee com-
pensation’ means, with respect to any employer for 
any taxable year, the average amount of compensa-
tion paid by such employer to qualified employees of 
such employer during such taxable year. 
‘‘(4) COMPENSATION.—The term ‘compensa-
tion’ has the meaning given such term in section 
408(p)(6)(A). 
‘‘(5) FAMILY
COVERAGE.—The term ‘family 
coverage’ means any coverage other than self-only 
coverage.
329 
‘‘(f) SPECIAL RULES.—For purposes of this sec-
tion— 
‘‘(1) SPECIAL RULE FOR PARTNERSHIPS AND 
SELF-EMPLOYED.—In the case of a partnership (or 
a trade or business carried on by an individual) 
which has one or more qualified employees (deter-
mined without regard to this paragraph) with re-
spect to whom the election under section 4980H(a) 
applies, each partner (or, in the case of a trade or 
business carried on by an individual, such indi-
vidual) shall be treated as an employee. 
‘‘(2) AGGREGATION RULE.—All persons treated 
as a single employer under subsection (b), (c), (m), 
or (o) of section 414 shall be treated as 1 employer. 
‘‘(3) PREDECESSORS.—Any reference in this 
section to an employer shall include a reference to 
any predecessor of such employer. 
‘‘(4) DENIAL OF DOUBLE BENEFIT.—Any de-
duction otherwise allowable with respect to amounts 
paid or incurred for health insurance coverage to 
which subsection (a) applies shall be reduced by the 
amount of the credit determined under this section. 
‘‘(5) INFLATION ADJUSTMENT.—In the case of 
any taxable year beginning after 2013, each of the
330 
dollar amounts in subsections (b)(2), (c)(2), and 
(e)(2) shall be increased by an amount equal to— 
‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost of living adjustment deter-
mined under section 1(f)(3) for the calendar 
year in which the taxable year begins deter-
mined by substituting ‘calendar year 2012’ for 
‘calendar year 1992’ in subparagraph (B) 
thereof. 
If any increase determined under this paragraph is 
not a multiple of $50, such increase shall be rounded 
to the next lowest multiple of $50.’’. 
(b) CREDIT TO BE PART OF GENERAL BUSINESS 
CREDIT.—Subsection (b) of section 38 of such Code (re-
lating to general business credit) is amended by striking 
‘‘plus’’ at the end of paragraph (34), by striking the period 
at the end of paragraph (35) and inserting ‘‘, plus’’, and 
by adding at the end the following new paragraph: 
‘‘(36) in the case of a qualified small employer 
(as defined in section 45R(e)), the small business 
employee health coverage credit determined under 
section 45R(a).’’. 
(c) CLERICAL AMENDMENT.—The table of sections 
for subpart D of part IV of subchapter A of chapter 1
331 
of such Code is amended by inserting after the item relat-
ing to section 45Q the following new item: 
‘‘Sec. 45R. Small business employee health coverage credit.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2012. 
PART 3—LIMITATIONS ON HEALTH CARE 
RELATED EXPENDITURES 
SEC. 531. DISTRIBUTIONS FOR MEDICINE QUALIFIED ONLY 
IF FOR PRESCRIBED DRUG OR INSULIN. 
(a) HSAS.—Subparagraph (A) of section 223(d)(2) 
of the Internal Revenue Code of 1986 is amended by add-
ing at the end the following: ‘‘Such term shall include an 
amount paid for medicine or a drug only if such medicine 
or drug is a prescribed drug or is insulin.’’. 
(b) ARCHER MSAS.—Subparagraph (A) of section 
220(d)(2) of such Code is amended by adding at the end 
the following: ‘‘Such term shall include an amount paid 
for medicine or a drug only if such medicine or drug is 
a prescribed drug or is insulin.’’. 
(c) HEALTH FLEXIBLE SPENDING ARRANGEMENTS 
AND HEALTH REIMBURSEMENT ARRANGEMENTS.—Sec-
tion 106 of such Code is amended by adding at the end 
the following new subsection: 
‘‘(f) REIMBURSEMENTS FOR MEDICINE RESTRICTED 
TO PRESCRIBED DRUGS AND INSULIN.—For purposes of
332 
this section and section 105, reimbursement for expenses 
incurred for a medicine or a drug shall be treated as a 
reimbursement for medical expenses only if such medicine 
or drug is a prescribed drug or is insulin.’’. 
(d) EFFECTIVE DATES.—The amendment made by 
this section shall apply to expenses incurred after Decem-
ber 31, 2010. 
SEC. 532. LIMITATION ON HEALTH FLEXIBLE SPENDING AR-
RANGEMENTS UNDER CAFETERIA PLANS. 
(a) IN GENERAL.—Section 125 of the Internal Rev-
enue Code of 1986 is amended— 
(1) by redesignating subsections (i) and (j) as 
subsections (j) and (k), respectively; and 
(2) by inserting after subsection (h) the fol-
lowing new subsection: 
‘‘(i) LIMITATION ON HEALTH FLEXIBLE SPENDING 
ARRANGEMENTS.— 
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, if a benefit is provided under a cafeteria plan 
through employer contributions to a health flexible 
spending arrangement, such benefit shall not be 
treated as a qualified benefit unless the cafeteria 
plan provides that an employee may not elect for 
any taxable year to have salary reduction contribu-
tions in excess of $2,500 made to such arrangement.
333 
‘‘(2) INFLATION ADJUSTMENT.—In the case of 
any taxable year beginning after 2013, the dollar 
amount in paragraph (1) shall be increased by an 
amount equal to— 
‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost of living adjustment deter-
mined under section 1(f)(3) for the calendar 
year in which the taxable year begins deter-
mined by substituting ‘calendar year 2012’ for 
‘calendar year 1992’ in subparagraph (B) 
thereof. 
If any increase determined under this paragraph is 
not a multiple of $50, such increase shall be rounded 
to the next lowest multiple of $50.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2012. 
SEC. 533. INCREASE IN PENALTY FOR NONQUALIFIED DIS-
TRIBUTIONS FROM HEALTH SAVINGS AC-
COUNTS. 
(a) IN GENERAL.—Subparagraph (A) of section 
223(f)(4) of the Internal Revenue Code of 1986 is amend-
ed by striking ‘‘10 percent’’ and inserting ‘‘20 percent’’.
336 
gible for such affordability credits (and the 
amount thereof), and 
‘‘(vi) the taxable year with respect to 
which the preceding information relates or, 
if applicable, the fact that such informa-
tion is not available. 
‘‘(B) RESTRICTION ON USE OF DISCLOSED 
INFORMATION.—Return information disclosed 
under subparagraph (A) may be used by offi-
cers and employees of the Health Choices Ad-
ministration or such State-based health insur-
ance exchange, as the case may be, only for the 
purposes of, and to the extent necessary in, es-
tablishing and verifying the appropriate amount 
of any affordability credit described in subtitle 
C of title III of the Affordable Health Care for 
America Act and providing for the repayment of 
any such credit which was in excess of such ap-
propriate amount.’’. 
(b) PROCEDURES AND RECORDKEEPING RELATED 
TO DISCLOSURES.—Paragraph (4) of section 6103(p) of 
such Code is amended— 
(1) by inserting ‘‘, or any entity described in 
subsection (l)(21),’’ after ‘‘or (20)’’ in the matter 
preceding subparagraph (A);
337 
(2) by inserting ‘‘or any entity described in sub-
section (l)(21),’’ after ‘‘or (o)(1)(A),’’ in subpara-
graph (F)(ii); and 
(3) by inserting ‘‘or any entity described in sub-
section (l)(21),’’ after ‘‘or (20),’’ both places it ap-
pears in the matter after subparagraph (F). 
(c) UNAUTHORIZED DISCLOSURE OR INSPECTION.— 
Paragraph (2) of section 7213(a) of such Code is amended 
by striking ‘‘or (20)’’ and inserting ‘‘(20), or (21)’’. 
SEC. 
542. 
OFFERING 
OF 
EXCHANGE-PARTICIPATING 
HEALTH BENEFITS PLANS THROUGH CAFE-
TERIA PLANS. 
(a) IN GENERAL.—Subsection (f) of section 125 of 
the Internal Revenue Code of 1986 is amended by adding 
at the end the following new paragraph: 
‘‘(3) 
CERTAIN
EXCHANGE-PARTICIPATING 
HEALTH BENEFITS PLANS NOT QUALIFIED.— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
benefit’ shall not include any exchange-partici-
pating health benefits plan (as defined in sec-
tion 101(c) of the Affordable Health Care for 
America Act). 
‘‘(B) EXCEPTION
FOR
EXCHANGE-ELIGI-
BLE EMPLOYERS.—Subparagraph (A) shall not 
apply with respect to any employee if such em-
338 
ployee’s employer is an exchange-eligible em-
ployer (as defined in section 302 of the Afford-
able Health Care for America Act).’’. 
(b) CONFORMING AMENDMENTS.—Subsection (f) of 
section 125 of such Code is amended— 
(1) by striking ‘‘For purposes of this section, 
the term’’ and inserting ‘‘For purposes of this sec-
tion— 
‘‘(1) IN GENERAL.—The term’’; and 
(2) by striking ‘‘Such term shall not include’’ 
and inserting the following: 
‘‘(2) LONG-TERM CARE INSURANCE NOT QUALI-
FIED.—The term ‘qualified benefit’ shall not in-
clude’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2012. 
SEC. 543. EXCLUSION FROM GROSS INCOME OF PAYMENTS 
MADE UNDER REINSURANCE PROGRAM FOR 
RETIREES. 
(a) IN GENERAL.—Section 139A of the Internal Rev-
enue Code of 1986 is amended— 
(1) by striking ‘‘Gross income’’ and inserting 
the following:
339 
‘‘(a) FEDERAL SUBSIDIES FOR PRESCRIPTION DRUG 
PLANS.—Gross income’’; and 
(2) by adding at the end the following new sub-
section: 
‘‘(b) FEDERAL REINSURANCE PROGRAM FOR RETIR-
EES.—A rule similar to the rule of subsection (a) shall 
apply with respect to payments made under section 111 
of the Affordable Health Care for America Act.’’. 
(b) CONFORMING AMENDMENT.—The heading of sec-
tion 139A of such Code (and the item relating to such 
section in the table of sections for part III of subchapter 
B of chapter 1 of such Code) is amended by inserting 
‘‘AND RETIREE HEALTH PLANS’’ after ‘‘PRESCRIP-
TION DRUG PLANS’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years ending after the 
date of the enactment of this Act. 
SEC. 544. CLASS PROGRAM TREATED IN SAME MANNER AS 
LONG-TERM CARE INSURANCE. 
(a) IN GENERAL.—Subsection (f) of section 7702B 
of the Internal Revenue Code of 1986 is amended— 
(1) by striking ‘‘State long-term care plan’’ in 
paragraph (1)(A) and inserting ‘‘government long- 
term care plan’’;
340 
(2) by redesignating paragraph (2) as para-
graph (3); and 
(3) by inserting after paragraph (2) the fol-
lowing new paragraph: 
‘‘(2) GOVERNMENT LONG-TERM CARE PLAN.— 
For purposes of this subsection, the term ‘govern-
ment long-term care plan’ means— 
‘‘(A) the CLASS program established 
under title XXXII of the Public Health Service 
Act, and 
‘‘(B) any State long-term care plan.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Paragraph (3) of section 7702B(f) of such 
Code, as redesignated by subsection (a), is amended 
by striking ‘‘paragraph (1)’’ and inserting ‘‘this sub-
section’’. 
(2) Subsection (f) of section 7702(B) of such 
Code is amended by striking ‘‘STATE-MAINTAINED’’ 
in the heading thereof and inserting ‘‘GOVERN-
MENT’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years ending after De-
cember 31, 2010.
341 
SEC. 545. EXCLUSION FROM GROSS INCOME FOR MEDICAL 
CARE PROVIDED FOR INDIANS. 
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to 
items specifically excluded from gross income) is amended 
by inserting after section 139C the following new section: 
‘‘SEC. 139D. MEDICAL CARE PROVIDED FOR INDIANS. 
‘‘(a) IN GENERAL.—Gross income does not include— 
‘‘(1) health services or benefits provided or pur-
chased by the Indian Health Service, either directly 
or indirectly, through a grant to or a contract or 
compact with an Indian tribe or tribal organization 
or through programs of third parties funded by the 
Indian Health Service, 
‘‘(2) medical care provided by an Indian tribe 
or tribal organization to a member of an Indian 
tribe (including for this purpose, to the member’s 
spouse or dependents) through any one of the fol-
lowing: provided or purchased medical care services; 
accident or health insurance (or an arrangement 
having the effect of accident or health insurance); or 
amounts paid, directly or indirectly, to reimburse the 
member for expenses incurred for medical care, 
‘‘(3) the value of accident or health plan cov-
erage provided by an Indian tribe or tribal organiza-
tion for medical care to a member of an Indian tribe
342 
(including for this purpose, coverage that extends to 
such member’s spouse or dependents) under an acci-
dent or health plan (or through an arrangement hav-
ing the effect of accident or health insurance), and 
‘‘(4) any other medical care provided by an In-
dian tribe that supplements, replaces, or substitutes 
for the programs and services provided by the Fed-
eral Government to Indian tribes or Indians. 
‘‘(b) DEFINITIONS.—For purposes of this section— 
‘‘(1) IN
GENERAL.—The terms ‘accident or 
health insurance’ and ‘accident or health plan’ have 
the same meaning as when used in sections 104 and 
106. 
‘‘(2) MEDICAL CARE.—The term ‘medical care’ 
has the meaning given such term in section 213. 
‘‘(3) DEPENDENT.—The term ‘dependent’ has 
the meaning given such term in section 152, deter-
mined without regard to subsections (b)(1), (b)(2), 
and (d)(1)(B). 
‘‘(4) INDIAN TRIBE.—The term ‘Indian tribe’ 
means any Indian tribe, band, nation, pueblo, or 
other organized group or community, including any 
Alaska Native village, or regional or village corpora-
tion, as defined in, or established pursuant to, the 
Alaska Native Claims Settlement Act (43 U.S.C.
343 
1601 et seq.), which is recognized as eligible for the 
special programs and services provided by the 
United States to Indians because of their status as 
Indians. 
‘‘(5) TRIBAL ORGANIZATION.—The term ‘tribal 
organization’ has the meaning given such term in 
section 4(l) of the Indian Self-Determination and 
Education Assistance Act (25 U.S.C. 450b(l)).’’. 
(b) CLERICAL AMENDMENT.—The table of sections 
for such part III is amended by inserting after the item 
relating to section 139C the following new item: 
‘‘Sec. 139D. Medical care provided for Indians.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to health benefits and coverage 
provided after the date of enactment of this Act. 
(d) NO INFERENCE.—Nothing in the amendments 
made by this section shall be construed to create an infer-
ence with respect to the exclusion from gross income of— 
(1) benefits provided by Indian tribes that are 
not within the scope of this section; and 
(2) health benefits or coverage provided by In-
dian tribes prior to the effective date of this section.
344 
Subtitle B—Other Revenue 
Provisions 
PART 1—GENERAL PROVISIONS 
SEC. 551. SURCHARGE ON HIGH INCOME INDIVIDUALS. 
(a) IN GENERAL.—Part VIII of subchapter A of 
chapter 1 of the Internal Revenue Code of 1986, as added 
by this title, is amended by adding at the end the following 
new subpart: 
‘‘Subpart B—Surcharge on High Income Individuals 
‘‘Sec. 59C. Surcharge on high income individuals. 
‘‘SEC. 59C. SURCHARGE ON HIGH INCOME INDIVIDUALS. 
‘‘(a) GENERAL RULE.—In the case of a taxpayer 
other than a corporation, there is hereby imposed (in addi-
tion to any other tax imposed by this subtitle) a tax equal 
to 5.4 percent of so much of the modified adjusted gross 
income of the taxpayer as exceeds $1,000,000. 
‘‘(b) TAXPAYERS NOT MAKING A JOINT RETURN.— 
In the case of any taxpayer other than a taxpayer making 
a joint return under section 6013 or a surviving spouse 
(as defined in section 2(a)), subsection (a) shall be applied 
by substituting ‘$500,000’ for ‘$1,000,000’. 
‘‘(c) MODIFIED ADJUSTED GROSS INCOME.—For 
purposes of this section, the term ‘modified adjusted gross 
income’ means adjusted gross income reduced by any de-
duction (not taken into account in determining adjusted
345 
gross income) allowed for investment interest (as defined 
in section 163(d)). In the case of an estate or trust, ad-
justed gross income shall be determined as provided in sec-
tion 67(e). 
‘‘(d) SPECIAL RULES.— 
‘‘(1) NONRESIDENT ALIEN.—In the case of a 
nonresident alien individual, only amounts taken 
into account in connection with the tax imposed 
under section 871(b) shall be taken into account 
under this section. 
‘‘(2) 
CITIZENS
AND
RESIDENTS
LIVING 
ABROAD.—The dollar amount in effect under sub-
section (a) (after the application of subsection (b)) 
shall be decreased by the excess of— 
‘‘(A) the amounts excluded from the tax-
payer’s gross income under section 911, over 
‘‘(B) the amounts of any deductions or ex-
clusions disallowed under section 911(d)(6) 
with respect to the amounts described in sub-
paragraph (A). 
‘‘(3) CHARITABLE
TRUSTS.—Subsection (a) 
shall not apply to a trust all the unexpired interests 
in which are devoted to one or more of the purposes 
described in section 170(c)(2)(B).
346 
‘‘(4) NOT TREATED AS TAX IMPOSED BY THIS 
CHAPTER
FOR
CERTAIN
PURPOSES.—The tax im-
posed under this section shall not be treated as tax 
imposed by this chapter for purposes of determining 
the amount of any credit under this chapter or for 
purposes of section 55.’’. 
(b) CLERICAL AMENDMENT.—The table of subparts 
for part VIII of subchapter A of chapter 1 of such Code, 
as added by this title, is amended by inserting after the 
item relating to subpart A the following new item: 
‘‘SUBPART B. SURCHARGE ON HIGH INCOME INDIVIDUALS.’’. 
(c) SECTION 15 NOT TO APPLY.—The amendment 
made by subsection (a) shall not be treated as a change 
in a rate of tax for purposes of section 15 of the Internal 
Revenue Code of 1986. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2010. 
SEC. 552. EXCISE TAX ON MEDICAL DEVICES. 
(a) IN GENERAL.—Chapter 31 of the Internal Rev-
enue Code of 1986 is amended by adding at the end the 
following new subchapter: 
‘‘Subchapter D—Medical Devices 
‘‘Sec. 4061. Medical devices.
347 
‘‘SEC. 4061. MEDICAL DEVICES. 
‘‘(a) IN GENERAL.—There is hereby imposed on the 
first taxable sale of any medical device a tax equal to 2.5 
percent of the price for which so sold. 
‘‘(b) FIRST TAXABLE SALE.—For purposes of this 
section— 
‘‘(1) IN
GENERAL.—The term ‘first taxable 
sale’ means the first sale, for a purpose other than 
for resale, after production, manufacture, or impor-
tation. 
‘‘(2) EXCEPTION FOR SALES AT RETAIL ESTAB-
LISHMENTS.—Such term shall not include the sale 
of any medical device if— 
‘‘(A) such sale is made at a retail estab-
lishment on terms which are available to the 
general public, and 
‘‘(B) such medical device is of a type (and 
purchased in a quantity) which is purchased by 
the general public. 
‘‘(3) EXCEPTION
FOR
EXPORTS, ETC.—Rules 
similar to the rules of sections 4221 (other than 
paragraphs (3), (4), (5), and (6) of subsection (a) 
thereof) and 4222 shall apply for purposes of this 
section. To the extent provided by the Secretary, 
section 4222 may be extended to, and made applica-
348 
ble with respect to, the exemption provided by para-
graph (2). 
‘‘(4) SALES TO PATIENTS NOT TREATED AS RE-
SALES.—If a medical device is sold for use in con-
nection with providing any health care service to an 
individual, such sale shall not be treated as being for 
the purpose of resale (even if such device is sold to 
such individual). 
‘‘(c) OTHER DEFINITIONS AND SPECIAL RULES.— 
For purposes of this section— 
‘‘(1) MEDICAL DEVICE.—The term ‘medical de-
vice’ means any device (as defined in section 201(h) 
of the Federal Food, Drug, and Cosmetic Act) in-
tended for humans. 
‘‘(2) LEASE TREATED AS SALE.—Rules similar 
to the rules of section 4217 shall apply. 
‘‘(3) USE TREATED AS SALE.— 
‘‘(A) IN GENERAL.—If any person uses a 
medical device before the first taxable sale of 
such device, then such person shall be liable for 
tax under such subsection in the same manner 
as if such use were the first taxable sale of such 
device. 
‘‘(B) EXCEPTIONS.—The preceding sen-
tence shall not apply to—
349 
‘‘(i) use of a medical device as mate-
rial in the manufacture or production of, 
or as a component part of, another medical 
device to be manufactured or produced by 
such person, or 
‘‘(ii) use of a medical device after a 
sale described in subsection (b)(2). 
‘‘(4) DETERMINATION OF PRICE.— 
‘‘(A) IN GENERAL.—Rules similar to the 
rules of subsections (a), (c), and (d) of section 
4216 shall apply for purposes of this section. 
‘‘(B) CONSTRUCTIVE SALE PRICE.—If— 
‘‘(i) a medical device is sold (otherwise 
than through an arm’s length transaction) 
at less than the fair market price, or 
‘‘(ii) a person is liable for tax for a 
use described in paragraph (3), 
the tax under this section shall be computed on 
the price for which such or similar devices are 
sold in the ordinary course of trade as deter-
mined by the Secretary. 
‘‘(5) RESALES
PURSUANT
TO
CERTAIN
CON-
TRACT ARRANGEMENTS.— 
‘‘(A) IN GENERAL.—In the case of a speci-
fied contract sale of a medical device, the seller
350 
referred to in subparagraph (B)(i) shall be enti-
tled to recover from the producer, manufac-
turer, or importer referred to in subparagraph 
(B)(ii) the amount of the tax paid by such sell-
er under this section with respect to such sale. 
‘‘(B) SPECIFIED
CONTRACT
SALE.—For 
purposes of this paragraph, the term ‘specified 
contract sale’ means, with respect to any med-
ical device, the first taxable sale of such device 
if— 
‘‘(i) the seller is not the producer, 
manufacturer, or importer of such device, 
and 
‘‘(ii) the price at which such device is 
so sold is determined in accordance with a 
contract between the producer, manufac-
turer, or importer of such device and the 
person to whom such device is so sold. 
‘‘(C) SPECIAL RULES RELATED TO CRED-
ITS AND REFUNDS.—In the case of any credit 
or refund under section 6416 of the tax im-
posed under this section on a specified contract 
sale of a medical device— 
‘‘(i) such credit or refund shall be al-
lowed or made only if the seller has filed
351 
with the Secretary the written consent of 
the producer, manufacturer, or importer 
referred to in subparagraph (B)(ii) to the 
allowance of such credit or the making of 
such refund, and 
‘‘(ii) the amount of tax taken into ac-
count under subparagraph (A) shall be re-
duced by the amount of such credit or re-
fund.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Paragraph (2) of section 6416(b) of such 
Code is amended— 
(A) by inserting ‘‘or 4061’’ after ‘‘under 
section 4051’’; and 
(B) by adding at the end the following: ‘‘In 
the case of the tax imposed by section 4061, 
subparagraphs (B), (C), (D), and (E) shall not 
apply.’’. 
(2) The table of subchapters for chapter 31 of 
such Code is amended by adding at the end the fol-
lowing new item: 
‘‘SUBCHAPTER D. MEDICAL DEVICES.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to sales (and leases and uses treat-
ed as sales) after December 31, 2012.
352 
SEC. 553. EXPANSION OF INFORMATION REPORTING RE-
QUIREMENTS. 
(a) IN GENERAL.—Section 6041 of the Internal Rev-
enue Code of 1986 is amended by adding at the end the 
following new subsections: 
‘‘(h) APPLICATION
TO CORPORATIONS.—Notwith-
standing any regulation prescribed by the Secretary before 
the date of the enactment of this subsection, for purposes 
of this section the term ‘person’ includes any corporation 
that is not an organization exempt from tax under section 
501(a). 
‘‘(i) REGULATIONS.—The Secretary may prescribe 
such regulations and other guidance as may be appro-
priate or necessary to carry out the purposes of this sec-
tion, including rules to prevent duplicative reporting of 
transactions.’’. 
(b) PAYMENTS FOR PROPERTY AND OTHER GROSS 
PROCEEDS.—Subsection (a) of section 6041 of the Inter-
nal Revenue Code of 1986 is amended— 
(1) by inserting ‘‘amounts in consideration for 
property,’’ after ‘‘wages,’’; 
(2) by inserting ‘‘gross proceeds,’’ after ‘‘emolu-
ments, or other’’; and 
(3) by inserting ‘‘gross proceeds,’’ after ‘‘setting 
forth the amount of such’’.
353 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to payments made after December 
31, 2011. 
SEC. 554. REPEAL OF WORLDWIDE ALLOCATION OF INTER-
EST. 
(a) IN GENERAL.—Section 864 of the Internal Rev-
enue Code of 1986 is amended by striking subsection (f) 
and by redesignating subsection (g) as subsection (f). 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2010. 
SEC. 555. EXCLUSION OF UNPROCESSED FUELS FROM THE 
CELLULOSIC BIOFUEL PRODUCER CREDIT. 
(a) IN GENERAL.—Subparagraph (E) of section 
40(b)(6) of the Internal Revenue Code of 1986 is amended 
by adding at the end the following new clause: 
‘‘(iii) EXCLUSION
OF
UNPROCESSED 
FUELS.—The term ‘cellulosic biofuel’ shall 
not include any fuel if— 
‘‘(I) more than 4 percent of such 
fuel (determined by weight) is any 
combination of water and sediment, or 
‘‘(II) the ash content of such fuel 
is more than 1 percent (determined by 
weight).’’.
354 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to fuels sold or used after the date 
of the enactment of this Act. 
PART 2—PREVENTION OF TAX AVOIDANCE 
SEC. 561. LIMITATION ON TREATY BENEFITS FOR CERTAIN 
DEDUCTIBLE PAYMENTS. 
(a) IN GENERAL.—Section 894 of the Internal Rev-
enue Code of 1986 (relating to income affected by treaty) 
is amended by adding at the end the following new sub-
section: 
‘‘(d) LIMITATION ON TREATY BENEFITS FOR CER-
TAIN DEDUCTIBLE PAYMENTS.— 
‘‘(1) IN GENERAL.—In the case of any deduct-
ible related-party payment, any withholding tax im-
posed under chapter 3 (and any tax imposed under 
subpart A or B of this part) with respect to such 
payment may not be reduced under any treaty of the 
United States unless any such withholding tax would 
be reduced under a treaty of the United States if 
such payment were made directly to the foreign par-
ent corporation. 
‘‘(2) 
DEDUCTIBLE
RELATED-PARTY
PAY-
MENT.—For purposes of this subsection, the term 
‘deductible related-party payment’ means any pay-
ment made, directly or indirectly, by any person to
355 
any other person if the payment is allowable as a de-
duction under this chapter and both persons are 
members of the same foreign controlled group of en-
tities. 
‘‘(3) FOREIGN CONTROLLED GROUP OF ENTI-
TIES.—For purposes of this subsection— 
‘‘(A) IN
GENERAL.—The term ‘foreign 
controlled group of entities’ means a controlled 
group of entities the common parent of which 
is a foreign corporation. 
‘‘(B) CONTROLLED GROUP OF ENTITIES.— 
The term ‘controlled group of entities’ means a 
controlled group of corporations as defined in 
section 1563(a)(1), except that— 
‘‘(i) ‘more than 50 percent’ shall be 
substituted for ‘at least 80 percent’ each 
place it appears therein, and 
‘‘(ii) the determination shall be made 
without regard to subsections (a)(4) and 
(b)(2) of section 1563. 
A partnership or any other entity (other than a 
corporation) shall be treated as a member of a 
controlled group of entities if such entity is con-
trolled 
(within 
the 
meaning 
of 
section 
954(d)(3)) by members of such group (includ-
356 
ing any entity treated as a member of such 
group by reason of this sentence). 
‘‘(4) FOREIGN
PARENT
CORPORATION.—For 
purposes of this subsection, the term ‘foreign parent 
corporation’ means, with respect to any deductible 
related-party payment, the common parent of the 
foreign controlled group of entities referred to in 
paragraph (3)(A). 
‘‘(5) REGULATIONS.—The Secretary may pre-
scribe such regulations or other guidance as are nec-
essary or appropriate to carry out the purposes of 
this subsection, including regulations or other guid-
ance which provide for— 
‘‘(A) the treatment of two or more persons 
as members of a foreign controlled group of en-
tities if such persons would be the common par-
ent of such group if treated as one corporation, 
and 
‘‘(B) the treatment of any member of a 
foreign controlled group of entities as the com-
mon parent of such group if such treatment is 
appropriate taking into account the economic 
relationships among such entities.’’.
357 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to payments made after the date 
of the enactment of this Act. 
SEC. 562. CODIFICATION OF ECONOMIC SUBSTANCE DOC-
TRINE; PENALTIES. 
(a) IN GENERAL.—Section 7701 of the Internal Rev-
enue Code of 1986 is amended by redesignating subsection 
(o) as subsection (p) and by inserting after subsection (n) 
the following new subsection: 
‘‘(o) CLARIFICATION
OF
ECONOMIC
SUBSTANCE 
DOCTRINE.— 
‘‘(1) APPLICATION OF DOCTRINE.—In the case 
of any transaction to which the economic substance 
doctrine is relevant, such transaction shall be treated 
as having economic substance only if— 
‘‘(A) the transaction changes in a mean-
ingful way (apart from Federal income tax ef-
fects) the taxpayer’s economic position, and 
‘‘(B) the taxpayer has a substantial pur-
pose (apart from Federal income tax effects) 
for entering into such transaction. 
‘‘(2) SPECIAL RULE WHERE TAXPAYER RELIES 
ON PROFIT POTENTIAL.— 
‘‘(A) IN
GENERAL.—The potential for 
profit of a transaction shall be taken into ac-
358 
count in determining whether the requirements 
of subparagraphs (A) and (B) of paragraph (1) 
are met with respect to the transaction only if 
the present value of the reasonably expected 
pre-tax profit from the transaction is substan-
tial in relation to the present value of the ex-
pected net tax benefits that would be allowed if 
the transaction were respected. 
‘‘(B) TREATMENT OF FEES AND FOREIGN 
TAXES.—Fees and other transaction expenses 
and foreign taxes shall be taken into account as 
expenses in determining pre-tax profit under 
subparagraph (A). 
‘‘(3) STATE AND LOCAL TAX BENEFITS.—For 
purposes of paragraph (1), any State or local income 
tax effect which is related to a Federal income tax 
effect shall be treated in the same manner as a Fed-
eral income tax effect. 
‘‘(4) FINANCIAL ACCOUNTING BENEFITS.—For 
purposes of paragraph (1)(B), achieving a financial 
accounting benefit shall not be taken into account as 
a purpose for entering into a transaction if the ori-
gin of such financial accounting benefit is a reduc-
tion of Federal income tax.
386 
(b) 
SKILLED
NURSING
FACILITIES.—Section 
1888(e)(5)(B) of such Act (42 U.S.C. 1395yy(e)(5)(B)) 
is amended by inserting ‘‘subject to the productivity ad-
justment described in section 1886(b)(3)(B)(iii)(II)’’ after 
‘‘as calculated by the Secretary’’. 
(c) 
LONG
TERM
CARE
HOSPITALS.—Section 
1886(m) of the Social Security Act (42 U.S.C. 
1395ww(m)) is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(3) PRODUCTIVITY
ADJUSTMENT.—In imple-
menting the system described in paragraph (1) for 
discharges occurring on or after January 1, 2010, 
during the rate year ending in 2010 or any subse-
quent rate year for a hospital, to the extent that an 
annual percentage increase factor applies to a stand-
ard Federal rate for such discharges for the hos-
pital, such factor shall be subject to the productivity 
adjustment 
described 
in 
subsection 
(b)(3)(B)(iii)(II).’’. 
(d) INPATIENT REHABILITATION FACILITIES.—The 
second sentence of section 1886(j)(3)(C) of the Social Se-
curity Act (42 U.S.C. 1395ww(j)(3)(C)) is amended by in-
serting ‘‘(subject to the productivity adjustment described 
in subsection (b)(3)(B)(iii)(II))’’ after ‘‘appropriate per-
centage increase’’.
399 
section 1886(d)(5)(F) of the Social Security Act (42 
U.S.C. 1395ww(d)(5)(F)) for inpatient hospital services 
furnished by disproportionate share hospitals. 
SEC. 1113. EXTENSION OF HOSPICE REGULATION MORATO-
RIUM. 
Section 4301(a) of division B of the American Recov-
ery and Reinvestment Act of 2009 (Public Law 111–5) 
is amended— 
(1) by striking ‘‘October 1, 2009’’ and inserting 
‘‘October 1, 2010’’; and 
(2) by striking ‘‘for fiscal year 2009’’ and in-
serting ‘‘for fiscal years 2009 and 2010’’. 
SEC. 1114. PERMITTING PHYSICIAN ASSISTANTS TO ORDER 
POST-HOSPITAL EXTENDED CARE SERVICES 
AND TO PROVIDE FOR RECOGNITION OF AT-
TENDING PHYSICIAN ASSISTANTS AS AT-
TENDING PHYSICIANS TO SERVE HOSPICE 
PATIENTS. 
(a) ORDERING POST-HOSPITAL EXTENDED CARE 
SERVICES.—Section 1814(a) of the Social Security Act 
(42 U.S.C. 1395f(a)) is amended— 
(1) in paragraph (2) in the matter preceding 
subparagraph (A), is amended by striking ‘‘nurse 
practitioner or clinical nurse specialist’’ and insert-