Calendar No. 365
104TH CONGRESS
2D SESSION
H. R. 3103
AN ACT
To amend the Internal Revenue Code of 1986 to
improve portability and continuity of health in-
surance coverage in the group and individual
markets, to combat waste, fraud, and abuse in
health insurance and health care delivery, to pro-
mote the use of medical savings accounts, to im-
prove access to long-term care services and cov-
erage, to simplify the administration of health in-
surance, and for other purposes.
APRIL 16, 1996
Read the second time and placed on the calendar
II
Calendar No. 365
104TH CONGRESS
2D SESSION
H. R. 3103
IN THE SENATE OF THE UNITED STATES
APRIL 15, 1996
Received and read the first time
APRIL 16, 1996
Read the second time and placed on the calendar
AN ACT
To amend the Internal Revenue Code of 1986 to improve
portability and continuity of health insurance coverage
in the group and individual markets, to combat waste,
fraud, and abuse in health insurance and health care
delivery, to promote the use of medical savings accounts,
to improve access to long-term care services and cov-
erage, to simplify the administration of health insurance,
and for other purposes.
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Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Health Coverage Availability and Affordability Act of
1996’’.
(b) TABLE OF CONTENTS.—The table of contents of
this Act is as follows:
Sec. 1. Short title; table of contents.
TITLE I—IMPROVED AVAILABILITY AND PORTABILITY OF
HEALTH INSURANCE COVERAGE
Subtitle A—Coverage Under Group Health Plans
Sec. 101. Portability of coverage for previously covered individuals.
Sec. 102. Limitation on preexisting condition exclusions; no application to cer-
tain newborns, adopted children, and pregnancy.
Sec. 103. Prohibiting exclusions based on health status and providing for en-
rollment periods.
Sec. 104. Enforcement.
Subtitle B—Certain Requirements for Insurers and HMOs in the Group and
Individual Markets
PART 1—AVAILABILITY OF GROUP HEALTH INSURANCE COVERAGE
Sec. 131. Guaranteed availability of general coverage in the small group mar-
ket.
Sec. 132. Guaranteed renewability of group coverage.
PART 2—AVAILABILITY OF INDIVIDUAL HEALTH INSURANCE COVERAGE
Sec. 141. Guaranteed availability of individual health insurance coverage to cer-
tain individuals with prior group coverage.
Sec. 142. Guaranteed renewability of individual health insurance coverage.
PART 3—ENFORCEMENT
Sec. 151. Incorporation of provisions for State enforcement with Federal fall-
back authority.
Subtitle C—Affordable and Available Health Coverage Through Multiple
Employer Pooling Arrangements
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Sec. 161. Clarification of duty of the Secretary of Labor to implement provi-
sions of current law providing for exemptions and solvency
standards for multiple employer health plans.
‘‘PART 7—RULES GOVERNING REGULATION OF MULTIPLE EMPLOYER
HEALTH PLANS
‘‘Sec. 701. Definitions.
‘‘Sec. 702. Clarification of duty of the Secretary to implement provisions
of current law providing for exemptions and solvency
standards for multiple employer health plans.
‘‘Sec. 703. Requirements relating to sponsors, boards of trustees, and plan
operations.
‘‘Sec. 704. Other requirements for exemption.
‘‘Sec. 705. Maintenance of reserves.
‘‘Sec. 706. Notice requirements for voluntary termination.
‘‘Sec. 707. Corrective actions and mandatory termination.
‘‘Sec. 708. Additional rules regarding State authority.
Sec. 162. Affordable and available fully insured health coverage through vol-
untary health insurance associations.
Sec. 163. State authority fully applicable to self-insured multiple employer wel-
fare arrangements providing medical care which are not ex-
empted under new part 7.
Sec. 164. Clarification of treatment of single employer arrangements.
Sec. 165. Clarification of treatment of certain collectively bargained arrange-
ments.
Sec. 166. Treatment of church plans.
Sec. 167. Enforcement provisions relating to multiple employer welfare arrange-
ments.
Sec. 168. Cooperation between Federal and State authorities.
Sec. 169. Filing and disclosure requirements for multiple employer welfare ar-
rangements offering health benefits.
Sec. 170. Single annual filing for all participating employers.
Sec. 171. Effective date; transitional rule.
Subtitle D—Definitions; General Provisions
Sec. 191. Definitions; scope of coverage.
Sec. 192. State flexibility to provide greater protection.
Sec. 193. Effective date.
Sec. 194. Rule of construction.
Sec. 195. Findings relating to exercise of commerce clause authority.
TITLE II—PREVENTING HEALTH CARE FRAUD AND ABUSE;
ADMINISTRATIVE SIMPLIFICATION; MEDICAL LIABILITY REFORM
Sec. 200. References in title.
Subtitle A—Fraud and Abuse Control Program
Sec. 201. Fraud and abuse control program.
Sec. 202. Medicare integrity program.
Sec. 203. Beneficiary incentive programs.
Sec. 204. Application of certain health anti-fraud and abuse sanctions to fraud
and abuse against Federal health care programs.
Sec. 205. Guidance regarding application of health care fraud and abuse sanc-
tions.
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Subtitle B—Revisions to Current Sanctions for Fraud and Abuse
Sec. 211. Mandatory exclusion from participation in medicare and State health
care programs.
Sec. 212. Establishment of minimum period of exclusion for certain individuals
and entities subject to permissive exclusion from medicare and
State health care programs.
Sec. 213. Permissive exclusion of individuals with ownership or control interest
in sanctioned entities.
Sec. 214. Sanctions against practitioners and persons for failure to comply with
statutory obligations.
Sec. 215. Intermediate sanctions for medicare health maintenance organiza-
tions.
Sec. 216. Additional exception to anti-kickback penalties for discounting and
managed care arrangements.
Sec. 217. Criminal penalty for fraudulent disposition of assets in order to ob-
tain medicaid benefits.
Sec. 218. Effective date.
Subtitle C—Data Collection
Sec. 221. Establishment of the health care fraud and abuse data collection pro-
gram.
Subtitle D—Civil Monetary Penalties
Sec. 231. Social security act civil monetary penalties.
Sec. 232. Clarification of level of intent required for imposition of sanctions.
Sec. 233. Penalty for false certification for home health services.
Subtitle E—Revisions to Criminal Law
Sec. 241. Definitions relating to Federal health care offense.
Sec. 242. Health care fraud.
Sec. 243. Theft or embezzlement.
Sec. 244. False statements.
Sec. 245. Obstruction of criminal investigations of health care offenses.
Sec. 246. Laundering of monetary instruments.
Sec. 247. Injunctive relief relating to health care offenses.
Sec. 248. Authorized investigative demand procedures.
Sec. 249. Forfeitures for Federal health care offenses.
Sec. 250. Relation to ERISA authority.
Subtitle F—Administrative Simplification
Sec. 251. Purpose.
Sec. 252. Administrative simplification.
‘‘PART C—ADMINISTRATIVE SIMPLIFICATION
‘‘Sec. 1171. Definitions.
‘‘Sec. 1172. General requirements for adoption of standards.
‘‘Sec. 1173. Standards for information transactions and data elements.
‘‘Sec. 1174. Timetables for adoption of standards.
‘‘Sec. 1175. Requirements.
‘‘Sec. 1176. General penalty for failure to comply with requirements and
standards.
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‘‘Sec. 1177. Wrongful disclosure of individually identifiable health informa-
tion.
‘‘Sec. 1178. Effect on State law.
Sec. 253. Changes in membership and duties of National Committee on Vital
and Health Statistics.
Subtitle G—Duplication and Coordination of Medicare-Related Plans
Sec. 261. Duplication and coordination of medicare-related plans.
Subtitle H—Medical Liability Reform
PART 1—GENERAL PROVISIONS
Sec. 271. Federal reform of health care liability actions.
Sec. 272. Definitions.
Sec. 273. Effective date.
PART 2—UNIFORM STANDARDS FOR HEALTH CARE LIABILITY ACTIONS
Sec. 281. Statute of limitations.
Sec. 282. Calculation and payment of damages.
Sec. 283. Alternative dispute resolution.
TITLE III—TAX-RELATED HEALTH PROVISIONS
Sec. 300. Amendment of 1986 code.
Subtitle A—Medical Savings Accounts
Sec. 301. Medical savings accounts.
Subtitle B—Increase in Deduction for Health Insurance Costs of Self-
Employed Individuals
Sec. 311. Increase in deduction for health insurance costs of self-employed indi-
viduals.
Subtitle C—Long-Term Care Services and Contracts
PART I—GENERAL PROVISIONS
Sec. 321. Treatment of long-term care insurance.
Sec. 322. Qualified long-term care services treated as medical care.
Sec. 323. Reporting requirements.
PART II—CONSUMER PROTECTION PROVISIONS
Sec. 325. Policy requirements.
Sec. 326. Requirements for issuers of long-term care insurance policies.
Sec. 327. Coordination with State requirements.
Sec. 328. Effective dates.
Subtitle D—Treatment of Accelerated Death Benefits
Sec. 331. Treatment of accelerated death benefits by recipient.
Sec. 332. Tax treatment of companies issuing qualified accelerated death bene-
fit riders.
Subtitle E—High-Risk Pools
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Sec. 341. Exemption from income tax for State-sponsored organizations provid-
ing health coverage for high-risk individuals.
Subtitle F—Organizations Subject to Section 833
Sec. 351. Organizations subject to section 833.
TITLE IV—REVENUE OFFSETS
Sec. 400. Amendment of 1986 Code.
Subtitle A—Repeal of Bad Debt Reserve Method for Thrift Savings
Associations
Sec. 401. Repeal of bad debt reserve method for thrift savings associations.
Subtitle B—Reform of the Earned Income Credit
Sec. 411. Earned income credit denied to individuals not authorized to be em-
ployed in the United States.
Subtitle C—Treatment of Individuals Who Lose United States Citizenship
Sec. 421. Revision of income, estate, and gift taxes on individuals who lose
United States citizenship.
Sec. 422. Information on individuals losing United States citizenship.
Sec. 423. Report on tax compliance by United States citizens and residents liv-
ing abroad.
TITLE I—IMPROVED AVAILABIL-
ITY 
AND 
PORTABILITY 
OF
HEALTH 
INSURANCE 
COV-
ERAGE
Subtitle A—Coverage Under Group
Health Plans
SEC. 101. PORTABILITY OF COVERAGE FOR PREVIOUSLY
COVERED INDIVIDUALS.
(a) CREDITING PERIODS OF PREVIOUS COVERAGE
TOWARD PREEXISTING CONDITION RESTRICTIONS.—Sub-
ject to the succeeding provisions of this section, a group
health plan, and an insurer or health maintenance organi-
zation offering health insurance coverage in connection
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with a group health plan, shall provide that any preexist-
ing condition limitation period (as defined in subsection
(b)(2)) is reduced by the length of the aggregate period
of qualified prior coverage (if any, as defined in subsection
(b)(3)) applicable to the participant or beneficiary as of
the date of commencement of coverage under the plan.
(b) DEFINITIONS AND OTHER PROVISIONS RELAT-
ING TO PREEXISTING CONDITIONS.—
(1) PREEXISTING CONDITION.—
(A) IN GENERAL.—For purposes of this
subtitle, subject to subparagraph (B), the term
‘‘preexisting condition’’ means a condition, re-
gardless of the cause of the condition, for which
medical advice, diagnosis, care, or treatment
was recommended or received within the 6-
month period ending on the day before—
(i) the effective date of the coverage
of such participant or beneficiary, or
(ii) the earliest date upon which such
coverage could have been effective if there
were no waiting period applicable,
whichever is earlier.
(B) TREATMENT
OF
GENETIC
INFORMA-
TION.—For purposes of this section, genetic in-
formation shall not be considered to be a pre-
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existing condition, so long as treatment of the
condition to which the information is applicable
has not been sought during the 6-month period
described in subparagraph (A).
(2) PREEXISTING CONDITION LIMITATION PE-
RIOD.—For purposes of this subtitle, the term ‘‘pre-
existing condition limitation period’’ means, with re-
spect to coverage of an individual under a group
health plan or under health insurance coverage, the
period during which benefits with respect to treat-
ment of a condition of such individual are not pro-
vided based on the fact that the condition is a pre-
existing condition.
(3) AGGREGATE PERIOD OF QUALIFIED PRIOR
COVERAGE.—
(A) IN GENERAL.—For purposes of this
section, the term ‘‘aggregate period of qualified
prior coverage’’ means, with respect to com-
mencement of coverage of an individual under
a group health plan or health insurance cov-
erage offered in connection with a group health
plan, the aggregate of the qualified coverage pe-
riods (as defined in subparagraph (B)) of such
individual occurring before the date of such
commencement. Such period shall be treated as
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zero if there is more than a 60-day break in
coverage under a group health plan (or health
insurance coverage offered in connection with
such a plan) between the date the most recent
qualified coverage period ends and the date of
such commencement.
(B) QUALIFIED COVERAGE PERIOD.—
(i) IN
GENERAL.—For purposes of
this paragraph, subject to subsection (c),
the term ‘‘qualified coverage period’’
means, with respect to an individual, any
period of coverage of the individual under
a group health plan, health insurance cov-
erage, under title XVIII or XIX of the So-
cial Security Act, coverage under the
TRICARE program under chapter 55 of
title 10, United States Code, a program of
the Indian Health Service, and State
health insurance coverage or risk pool, and
includes coverage under a health plan of-
fered under chapter 89 of title 5, United
States Code.
(ii) DISREGARDING PERIODS BEFORE
BREAKS
IN
COVERAGE.—Such term does
not include any period occurring before
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any 60-day break in coverage described in
subparagraph (A).
(C) WAITING PERIOD NOT TREATED AS A
BREAK
IN
COVERAGE.—For purposes of sub-
paragraphs (A) and (B), any period that is in
a waiting period for any coverage under a
group health plan (or for health insurance cov-
erage offered in connection with a group health
plan) shall not be considered to be a break in
coverage described in subparagraph (B)(ii).
(D) 
ESTABLISHMENT
OF
PERIOD.—A
qualified coverage period with respect to an in-
dividual shall be established through presen-
tation of certifications described in subsection
(c) or in such other manner as may be specified
in regulations to carry out this title.
(c) CERTIFICATIONS
OF COVERAGE; CONFORMING
COVERAGE.—
(1) IN GENERAL.—The plan administrator of a
group health plan, or the insurer or HMO offering
health insurance coverage in connection with a group
health plan, shall, on request made on behalf of an
individual covered (or previously covered within the
previous 18 months) under the plan or coverage,
provide for a certification of the period of coverage
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of the individual under such plan or coverage and of
the waiting period (if any) imposed with respect to
the individual for any coverage under the plan.
(2) STANDARD METHOD.—Subject to paragraph
(3), a group health plan, or insurer or HMO offering
health insurance coverage in connection with a group
health plan, shall determine qualified coverage peri-
ods under subsection (b)(3)(B) by including all peri-
ods described in such subsection, without regard to
the specific benefits offered during such a period.
(3) ALTERNATIVE METHOD.—Such a plan, in-
surer, or HMO may elect to make such determina-
tion on a benefit-specific basis for all participants
and beneficiaries and not to include as a qualified
coverage period with respect to a specific benefit
coverage during a previous period unless such pre-
vious coverage for that benefit was included at the
end of the most recent period of coverage. In the
case of such an election—
(A) the plan, insurer, or HMO shall promi-
nently state in any disclosure statements con-
cerning the plan or coverage and to each en-
rollee at the time of enrollment under the plan
(or at the time the health insurance coverage is
offered for sale in the group health market)
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that the plan or coverage has made such elec-
tion and shall include a description of the effect
of this election; and
(B) upon the request of the plan, insurer,
or HMO, the entity providing a certification
under paragraph (1)—
(i) shall promptly disclose to the re-
questing plan, insurer, or HMO the plan
statement (insofar as it relates to health
benefits under the plan) or other detailed
benefit information on the benefits avail-
able under the previous plan or coverage,
and
(ii) may charge for the reasonable
cost of providing such information.
SEC. 102. LIMITATION ON PREEXISTING CONDITION EXCLU-
SIONS; 
NO 
APPLICATION 
TO 
CERTAIN
NEWBORNS, ADOPTED CHILDREN, AND PREG-
NANCY.
(a) LIMITATION OF PERIOD.—
(1) IN
GENERAL.—Subject to the succeeding
provisions of this section, a group health plan, and
an insurer or HMO offering health insurance cov-
erage in connection with a group health plan, shall
provide that any preexisting condition limitation pe-
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riod (as defined in section 101(b)(2)) does not ex-
ceed 12 months, counting from the effective date of
coverage.
(2) EXTENSION OF PERIOD IN THE CASE OF
LATE ENROLLMENT.—In the case of a participant or
beneficiary whose initial coverage commences after
the date the participant or beneficiary first becomes
eligible for coverage under the group health plan,
the reference in paragraph (1) to ‘‘12 months’’ is
deemed a reference to ‘‘18 months’’.
(b) EXCLUSION
NOT
APPLICABLE
TO
CERTAIN
NEWBORNS AND CERTAIN ADOPTIONS.—
(1) IN GENERAL.—Subject to paragraph (2), a
group health plan, and an insurer or HMO offering
health insurance coverage in connection with a group
health plan, may not provide any limitation on bene-
fits based on the existence of a preexisting condition
in the case of—
(A) an individual who within the 30-day
period beginning with the date of birth, or
(B) an adopted child or a child placed for
adoption beginning at the time of adoption or
placement if the individual, within the 30-day
period beginning on the date of adoption or
placement,
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becomes covered under a group health plan or other-
wise becomes covered under health insurance cov-
erage (or covered for medical assistance under title
XIX of the Social Security Act).
(2) LOSS IF BREAK IN COVERAGE.—Paragraph
(1) shall no longer apply to an individual if the indi-
vidual does not have any coverage described in sec-
tion 101(b)(3)(B)(i) for a continuous period of 60
days, not counting in such period any days that are
in a waiting period for any coverage under a group
health plan.
(3) PLACED FOR ADOPTION DEFINED.—In this
subsection and section 103(e), the term ‘‘place-
ment’’, or being ‘‘placed’’, for adoption, in connec-
tion with any placement for adoption of a child with
any person, means the assumption and retention by
such person of a legal obligation for total or partial
support of such child in anticipation of adoption of
such child. The child’s placement with such person
terminates upon the termination of such legal obliga-
tion.
(c) EXCLUSION NOT APPLICABLE TO PREGNANCY.—
For purposes of this section, pregnancy shall not be treat-
ed as a preexisting condition.
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(d) ELIGIBILITY
PERIOD
IMPOSED
BY
HEALTH
MAINTENANCE
ORGANIZATIONS
AS
ALTERNATIVE
TO
PREEXISTING CONDITION LIMITATION.—A health mainte-
nance organization which offers health insurance coverage
in connection with a group health plan and which does
not use the preexisting condition limitations allowed under
this section and section 101 with respect to any particular
coverage option may impose an eligibility period for such
coverage option, but only if such period does not exceed—
(1) 60 days, in the case of a participant or ben-
eficiary whose initial coverage commences at the
time such participant or beneficiary first becomes el-
igible for coverage under the plan, or
(2) 90 days, in the case of a participant or ben-
eficiary whose initial coverage commences after the
date on which such participant or beneficiary first
becomes eligible for coverage.
Such an HMO may use alternative methods, from those
described in the previous sentence, to address adverse se-
lection as approved by the applicable State authority. For
purposes of this subsection, the term ‘‘eligibility period’’
means a period which, under the terms of the health insur-
ance coverage offered by the health maintenance organiza-
tion, must expire before the health insurance coverage be-
comes effective. Any such eligibility period shall be treated
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for purposes of this subtitle as a waiting period under the
plan and shall run concurrently with any other applicable
waiting period under the plan.
SEC. 103. PROHIBITING EXCLUSIONS BASED ON HEALTH
STATUS AND PROVIDING FOR ENROLLMENT
PERIODS.
(a) PROHIBITION OF EXCLUSION OF PARTICIPANTS
OR BENEFICIARIES BASED ON HEALTH STATUS.—
(1) IN GENERAL.—A group health plan, and an
insurer or HMO offering health insurance coverage
in connection with a group health plan, may not ex-
clude an employee or his or her beneficiary from
being (or continuing to be) enrolled as a participant
or beneficiary under the terms of such plan or cov-
erage based on health status (as defined in section
191(c)(6)).
(2) CONSTRUCTION.—Nothing in this sub-
section shall be construed as preventing the estab-
lishment of preexisting condition limitations and re-
strictions to the extent consistent with the provisions
of this subtitle.
(b) PROHIBITION OF DISCRIMINATION IN PREMIUM
CONTRIBUTIONS
OF
INDIVIDUAL
PARTICIPANTS
OR
BENEFICIARIES BASED ON HEALTH STATUS.—
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(1) IN GENERAL.—A group health plan, and an
insurer or HMO offering health insurance coverage
in connection with a group health plan, may not re-
quire a participant or beneficiary to pay a premium
or contribution which is greater than such premium
or contribution for a similarly situated participant or
beneficiary solely on the basis of the health status
of the participant or beneficiary.
(2) CONSTRUCTION.—Nothing in this sub-
section is intended—
(A) to effect the premium rates an insurer
or HMO may charge an employer for health in-
surance coverage provided in connection a
group health plan,
(B) to prevent a group health plan (or in-
surer or HMO in health insurance coverage of-
fered in connection with such a plan) from es-
tablishing premium discounts or modifying oth-
erwise applicable copayments or deductibles in
return for adherence to programs of health pro-
motion and disease prevention, or
(C) to prevent such a plan, insurer, or
HMO from varying the premiums or contribu-
tions required of participants or beneficiaries
based on factors (such as scope of benefits, geo-
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graphic area of residence, or wage levels) that
are not directly related to health status.
(c) ENROLLMENT OF ELIGIBLE INDIVIDUALS WHO
LOSE OTHER COVERAGE.—A group health plan shall per-
mit an uncovered employee who is otherwise eligible for
coverage under the terms of the plan (or an uncovered
dependent, as defined under the terms of the plan, of such
an employee, if family coverage is available) to enroll for
coverage under the plan under at least one benefit option
if each of the following conditions is met:
(1) The employee or dependent was covered
under a group health plan or had health insurance
coverage at the time coverage was previously offered
to the employee or individual.
(2) The employee stated in writing at such time
that coverage under a group health plan or health
insurance coverage was the reason for declining en-
rollment.
(3) The employee or dependent lost coverage
under a group health plan or health insurance cov-
erage (as a result of loss of eligibility for the cov-
erage, termination of employment, or reduction in
the number of hours of employment).
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(4) The employee requests such enrollment
within 30 days after the date of termination of such
coverage.
(d) DEPENDENT BENEFICIARIES.—
(1) IN
GENERAL.—If a group health plan
makes family coverage available, the plan may not
require, as a condition of coverage of an individual
as a dependent (as defined under the terms of the
plan) of a participant in the plan, a waiting period
applicable to the coverage of a dependent who—
(A) is a newborn,
(B) is an adopted child or child placed for
adoption (within the meaning of section
102(b)(3)), at the time of adoption or place-
ment, or
(C) is a spouse, at the time of marriage,
if the participant has met any waiting period appli-
cable to that participant.
(2) TIMELY ENROLLMENT.—
(A) IN GENERAL.—Enrollment of a partici-
pant’s beneficiary described in paragraph (1)
shall be considered to be timely if a request for
enrollment is made within 30 days of the date
family coverage is first made available or, in the
case described in—
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(i) paragraph (1)(A), within 30 days
of the date of the birth,
(ii) paragraph (1)(B), within 30 days
of the date of the adoption or placement
for adoption, or
(iii) paragraph (1)(C), within 30 days
of the date of the marriage with such a
beneficiary who is the spouse of the partic-
ipant,
if family coverage is available as of such date.
(B) COVERAGE.—If available coverage in-
cludes family coverage and enrollment is made
under such coverage on a timely basis under
subparagraph (A), the coverage shall become ef-
fective not later than the first day of the first
month beginning 15 days after the date the
completed request for enrollment is received.
(e) MULTIEMPLOYER PLANS, MULTIPLE EMPLOYER
HEALTH PLANS, AND MULTIPLE EMPLOYER WELFARE
ARRANGEMENTS.—A group health plan which is a multi-
employer plan, a multiple employer health plan (as de-
fined in section 701(4) of the Employee Retirement In-
come Security Act of 1974), or a multiple employer wel-
fare arrangement (to the extent to which benefits under
the arrangement consist of medical care) may not deny
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an employer whose employees are covered under such a
plan or arrangement continued access to the same or dif-
ferent coverage under the terms of such a plan or ar-
rangement, other than—
(1) for nonpayment of contributions,
(2) for fraud or other intentional misrepresen-
tation of material fact by the employer,
(3) for noncompliance with material plan or ar-
rangement provisions,
(4) because the plan or arrangement is ceasing
to offer any coverage in a geographic area,
(5) for failure to meet the terms of an applica-
ble collective bargaining agreement, to renew a col-
lective bargaining or other agreement requiring or
authorizing contributions to the plan, or to employ
employees covered by such an agreement,
(6) in the case of a plan or arrangement to
which subparagraph (C), (D), or (E) of section
3(40) of the Employee Retirement Income Security
Act of 1974 applies, to the extent necessary to meet
the requirements of such subparagraph, or
(7) in the case of a multiple employer health
plan (as defined in section 701(4) of such Act), for
failure to meet the requirements under part 7 of
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subtitle B of title I of such Act for exemption under
section 514(b)(6)(B) of such Act.
SEC. 104. ENFORCEMENT.
(a) ENFORCEMENT THROUGH COBRA PROVISIONS
IN INTERNAL REVENUE CODE.—
(1) APPLICATION OF COBRA SANCTIONS.—Sub-
section (a) of section 4980B of the Internal Revenue
Code of 1986 is amended by striking ‘‘the require-
ments of’’ and all that follows and inserting ‘‘the re-
quirements of—
‘‘(1) subsection (f) with respect to any qualified
beneficiary, or
‘‘(2) subject to subsection (h)—
‘‘(A) section 101 or 102 of the Health
Coverage Availability and Affordability Act of
1996 with respect to any individual covered
under the group health plan, or
‘‘(B) section 103 (other than subsection
(e)) of such Act with respect to any individ-
ual.’’.
(2) 
NOTICE
REQUIREMENT.—Section
4980B(f)(6)(A) of such Code is amended by insert-
ing before the period the following: ‘‘and subtitle A
of title I of the Health Coverage Availability and Af-
fordability Act of 1996’’.
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(3) SPECIAL RULES.—Section 4980B of such
Code is amended by adding at the end the following:
‘‘(h) SPECIAL RULES.—For purposes of applying this
section in the case of requirements described in subsection
(a)(2) relating to section 101, section 102, or section 103
(other than subsection (e)) of the Health Coverage Avail-
ability and Affordability Act of 1996—
‘‘(1) IN GENERAL.—
‘‘(A) DEFINITION
OF
GROUP
HEALTH
PLAN.—The term ‘group health plan’ has the
meaning given such term in section 191(a) of
the Health Coverage Availability and Afford-
ability Act of 1996.
‘‘(B) 
QUALIFIED
BENEFICIARY.—Sub-
sections (b), (c), and (e) shall be applied by
substituting the term ‘individual’ for the term
‘qualified beneficiary’ each place it appears.
‘‘(C) NONCOMPLIANCE
PERIOD.—Clause
(ii) of subsection (b)(2)(B) and the second sen-
tence of subsection (b)(2) shall not apply.
‘‘(D) LIMITATION ON TAX.—Subparagraph
(B) of subsection (c)(3) shall not apply.
‘‘(E) LIABILITY FOR TAX.—Paragraph (2)
of subsection (e) shall not apply.
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‘‘(2) DEFERRAL TO STATE REGULATION.—No
tax shall be imposed by this section on any failure
to meet the requirements of such section by any en-
tity which offers health insurance coverage and
which is an insurer or health maintenance organiza-
tion (as defined in section 191(c) of the Health Cov-
erage Availability and Affordability Act of 1996)
regulated by a State unless the Secretary of Health
and Human Services has made the determination
described in section 104(c)(2) of such Act with re-
spect to such State, section, and entity.
‘‘(3) LIMITATION FOR INSURED PLANS.—In the
case of a group health plan of a small employer (as
defined in section 191 of the Health Coverage Avail-
ability and Affordability Act of 1996) that provides
health care benefits solely through a contract with
an insurer or health maintenance organization (as
defined in such section), no tax shall be imposed by
this section upon the employer on a failure to meet
such requirements if the failure is solely because of
the product offered by the insurer or organization
under such contract.
‘‘(4) LIMITATION ON IMPOSITION OF TAX.—In
no case shall a tax be imposed by this section for a
failure to meet such a requirement if—
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‘‘(A) a civil money penalty has been im-
posed by the Secretary of Labor under part 5
of subtitle A of title I of the Employee Retire-
ment Income Security Act of 1974 with respect
to such failure, or
‘‘(B) a civil money penalty has been im-
posed by the Secretary of Health and Human
Services under section 104(c) of the Health
Coverage Availability and Affordability Act of
1996 with respect to such failure.’’.
(b) ENFORCEMENT THROUGH ERISA SANCTIONS
FOR CERTAIN GROUP HEALTH PLANS.—
(1) IN
GENERAL.—Subject to the succeeding
provisions of this subsection, sections 101 through
103 of this subtitle (and subtitle D insofar as it is
applicable to such sections) shall be deemed to be
provisions of title I of the Employee Retirement In-
come Security Act of 1974 for purposes of applying
such title.
(2) FEDERAL ENFORCEMENT ONLY IF NO EN-
FORCEMENT
THROUGH
STATE.—The Secretary of
Labor shall enforce each section referred to in para-
graph (1) with respect to any entity which is an in-
surer or health maintenance organization regulated
by a State only if the Secretary of Labor determines
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that such State has not provided for enforcement of
State laws which govern the same matters as are
governed by such section and which require compli-
ance by such entity with at least the same require-
ments as those provided under such section.
(3) LIMITATIONS ON LIABILITY.—
(A) NO
APPLICATION
WHERE
FAILURE
NOT
DISCOVERED
EXERCISING
REASONABLE
DILIGENCE.—No liability shall be imposed
under this subsection on the basis of any failure
during any period for which it is established to
the satisfaction of the Secretary of Labor that
none of the persons against whom the liability
would be imposed knew, or exercising reason-
able diligence would have known, that such fail-
ure existed.
(B) NO
APPLICATION
WHERE
FAILURE
CORRECTED
WITHIN
DAYS.—No liability
shall be imposed under this subsection on the
basis of any failure if such failure was due to
reasonable cause and not to willful neglect, and
such failure is corrected during the 30-day pe-
riod beginning on the first day any of the per-
sons against whom the liability would be im-
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posed knew, or exercising reasonable diligence
would have known, that such failure existed.
(4) AVOIDING DUPLICATION OF CERTAIN PEN-
ALTIES.—In no case shall a civil money penalty be
imposed under the authority provided under para-
graph (1) for a violation of this subtitle for which
an excise tax has been imposed under section 4980B
of the Internal Revenue Code of 1986 or a civil
money penalty imposed under subsection (c).
(c) ENFORCEMENT THROUGH CIVIL MONEY PEN-
ALTIES.—
(1) IMPOSITION.—
(A) IN GENERAL.—Subject to the succeed-
ing provisions of this subsection, any group
health plan, insurer, or organization that fails
to meet a requirement of this subtitle (other
than section 103(e)) is subject to a civil money
penalty under this section.
(B) LIABILITY FOR PENALTY.—Rules simi-
lar to the rules described in section 4980B(e) of
the Internal Revenue Code of 1986 for liability
for a tax imposed under section 4980B(a) of
such Code shall apply to liability for a penalty
imposed under subparagraph (A).
(C) AMOUNT OF PENALTY.—
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(i) 
IN
GENERAL.—The 
maximum
amount of penalty imposed under this
paragraph is $100 for each day for each
individual with respect to which such a
failure occurs.
(ii) 
CONSIDERATIONS
IN
IMPOSI-
TION.—In determining the amount of any
penalty to be assessed under this para-
graph, the Secretary of Health and Human
Services shall take into account the pre-
vious record of compliance of the person
being assessed with the applicable require-
ments of this subtitle, the gravity of the
violation, and the overall limitations for
unintentional failures provided under sec-
tion 4980B(c)(4) of the Internal Revenue
Code of 1986.
(iii) LIMITATIONS.—
(I) PENALTY
NOT
TO
APPLY
WHERE
FAILURE
NOT
DISCOVERED
EXERCISING
REASONABLE
DILI-
GENCE.—No civil money penalty shall
be imposed under this paragraph on
any failure during any period for
which it is established to the satisfac-
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tion of the Secretary that none of the
persons against whom the penalty
would be imposed knew, or exercising
reasonable 
diligence 
would 
have
known, that such failure existed.
(II) PENALTY NOT TO APPLY TO
FAILURES
CORRECTED
WITHIN
DAYS.—No civil money penalty shall
be imposed under this paragraph on
any failure if such failure was due to
reasonable cause and not to willful ne-
glect, and such failure is corrected
during the 30-day period beginning on
the first day any of the persons
against whom the penalty would be
imposed knew, or exercising reason-
able diligence would have known, that
such failure existed.
(D) ADMINISTRATIVE REVIEW.—
(i) OPPORTUNITY
FOR
HEARING.—
The person assessed shall be afforded an
opportunity for hearing by the Secretary
upon request made within 30 days after
the date of the issuance of a notice of as-
sessment. In such hearing the decision
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shall be made on the record pursuant to
section 554 of title 5, United States Code.
If no hearing is requested, the assessment
shall constitute a final and unappealable
order.
(ii) 
HEARING
PROCEDURE.—If 
a
hearing is requested, the initial agency de-
cision shall be made by an administrative
law judge, and such decision shall become
the final order unless the Secretary modi-
fies or vacates the decision. Notice of in-
tent to modify or vacate the decision of the
administrative law judge shall be issued to
the parties within 30 days after the date of
the decision of the judge. A final order
which takes effect under this paragraph
shall be subject to review only as provided
under subparagraph (D).
(E) JUDICIAL REVIEW.—
(i) FILING OF ACTION FOR REVIEW.—
Any person against whom an order impos-
ing a civil money penalty has been entered
after an agency hearing under this para-
graph may obtain review by the United
States district court for any district in
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which such person is located or the United
States District Court for the District of
Columbia by filing a notice of appeal in
such court within 30 days from the date of
such order, and simultaneously sending a
copy of such notice be registered mail to
the Secretary.
(ii) CERTIFICATION OF ADMINISTRA-
TIVE
RECORD.—The 
Secretary 
shall
promptly certify and file in such court the
record upon which the penalty was im-
posed.
(iii) STANDARD
FOR
REVIEW.—The
findings of the Secretary shall be set aside
only if found to be unsupported by sub-
stantial evidence as provided by section
706(2)(E) of title 5, United States Code.
(iv) APPEAL.—Any final decision,
order, or judgment of such district court
concerning such review shall be subject to
appeal as provided in chapter 83 of title 28
of such Code.
(F) FAILURE TO PAY ASSESSMENT; MAIN-
TENANCE OF ACTION.—
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(i) FAILURE TO PAY ASSESSMENT.—If
any person fails to pay an assessment after
it has become a final and unappealable
order, or after the court has entered final
judgment in favor of the Secretary, the
Secretary shall refer the matter to the At-
torney General who shall recover the
amount assessed by action in the appro-
priate United States district court.
(ii) NONREVIEWABILITY.—In such ac-
tion the validity and appropriateness of the
final order imposing the penalty shall not
be subject to review.
(G) PAYMENT OF PENALTIES.—Except as
otherwise provided, penalties collected under
this paragraph shall be paid to the Secretary
(or other officer) imposing the penalty and shall
be available without appropriation and until ex-
pended for the purpose of enforcing the provi-
sions with respect to which the penalty was im-
posed.
(2) FEDERAL ENFORCEMENT ONLY IF NO EN-
FORCEMENT THROUGH STATE.—Paragraph (1) shall
apply to enforcement of the requirements of section
101, 102, or 103 (other than section 103(e)) with
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respect to any entity which offers health insurance
coverage and which is an insurer or HMO regulated
by a State only if the Secretary of Health and
Human Services has determined that such State has
not provided for enforcement of State laws which
govern the same matters as are governed by such
section and which require compliance by such entity
with at least the same requirements as those pro-
vided under such section.
(3) NONDUPLICATION
OF
SANCTIONS.—In no
case shall a civil money penalty be imposed under
this subsection for a violation of this subtitle for
which an excise tax has been imposed under section
4980B of the Internal Revenue Code of 1986 or for
which a civil money penalty has been imposed under
the authority provided under subsection (b).
(d) COORDINATION IN ADMINISTRATION.—The Sec-
retaries of the Treasury, Labor, and Health and Human
Services shall issue regulations that are nonduplicative to
carry out this subtitle. Such regulations shall be issued
in a manner that assures coordination and nonduplication
in their activities under this subtitle.
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Subtitle B—Certain Requirements
for Insurers and HMOs in the
Group and Individual Markets
PART 1—AVAILABILITY OF GROUP HEALTH
INSURANCE COVERAGE
SEC. 131. GUARANTEED AVAILABILITY OF GENERAL COV-
ERAGE IN THE SMALL GROUP MARKET.
(a) ISSUANCE OF COVERAGE.—
(1) IN
GENERAL.—Subject to the succeeding
subsections of this section, each insurer or HMO
that offers health insurance coverage in the small
group market in a State—
(A) must accept every small employer in
the State that applies for such coverage; and
(B) must accept for enrollment under such
coverage every eligible individual (as defined in
paragraph (2)) who applies for enrollment dur-
ing the initial period in which the individual
first becomes eligible for coverage under the
group health plan and may not place any re-
striction which is inconsistent with section
103(a) on an individual being a participant or
beneficiary so long as such individual is an eli-
gible individual.
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(2) ELIGIBLE INDIVIDUAL DEFINED.—In this
section, the term ‘‘eligible individual’’ means, with
respect to an insurer or HMO that offers health in-
surance coverage to any small employer in the small
group market, such an individual in relation to the
employer as shall be determined—
(A) in accordance with the terms of such
plan,
(B) as provided by the insurer or HMO
under rules of the insurer or HMO which are
uniformly applicable, and
(C) in accordance with all applicable State
laws governing such insurer or HMO.
(b) SPECIAL RULES
FOR NETWORK PLANS
AND
HMOS.—
(1) IN GENERAL.—In the case of an insurer
that offers health insurance coverage in the small
group market through a network plan and in the
case of an HMO that offers health insurance cov-
erage in connection with such a plan, the insurer or
HMO may—
(A) limit the employers that may apply for
such coverage to those with eligible individuals
whose place of employment or residence is in
the service area for such plan or HMO;
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(B) limit the individuals who may be en-
rolled under such coverage to those whose place
of residence or employment is within the service
area for such plan or HMO; and
(C) within the service area of such plan or
HMO, deny such coverage to such employers if
the insurer or HMO demonstrates that—
(i) it will not have the capacity to de-
liver services adequately to enrollees of any
additional groups because of its obligations
to existing group contract holders and en-
rollees, and
(ii) it is applying this paragraph uni-
formly to all employers without regard to
the claims experience of those employers
and their employees (and their bene-
ficiaries) or the health status of such em-
ployees and beneficiaries.
(2) 180-DAY
SUSPENSION
UPON
DENIAL
OF
COVERAGE.—An insurer or HMO, upon denying
health insurance coverage in any service area in ac-
cordance with paragraph (1)(C), may not offer cov-
erage in the small group market within such service
area for a period of 180 days after such coverage is
denied.
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(c) SPECIAL RULE FOR FINANCIAL CAPACITY LIM-
ITS.—
(1) IN GENERAL.—An insurer or HMO may
deny health insurance coverage in the small group
market if the insurer or HMO demonstrates to the
applicable State authority that—
(A) it does not have the financial reserves
necessary to underwrite additional coverage,
and
(B) it is applying this paragraph uniformly
to all employers without regard to the claims
experience or duration of coverage of those em-
ployers and their employees (and their bene-
ficiaries) or the health status of such employees
and beneficiaries.
(2) 180-DAY
SUSPENSION
UPON
DENIAL
OF
COVERAGE.—An insurer or HMO upon denying
health insurance coverage in connection with group
health plans in any service area in accordance with
paragraph (1) may not offer coverage in connection
with group health plans in the small group market
within such service area for a period of 180 days
after such coverage is denied.
(d) EXCEPTION TO REQUIREMENT FOR ISSUANCE OF
COVERAGE BY REASON OF FAILURE BY PLAN TO MEET
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CERTAIN MINIMUM PARTICIPATION
OR CONTRIBUTION
RULES.—
(1) IN
GENERAL.—Subsection (a) shall not
apply in the case of any group health plan with re-
spect to which—
(A) participation rules of an insurer or
HMO which are described in paragraph (2) are
not met, or
(B) contribution rules of an insurer or
HMO which are described in paragraph (3) are
not met.
(2) PARTICIPATION
RULES.—For purposes of
paragraph (1)(A), participation rules (if any) of an
insurer or HMO shall be treated as met with respect
to a group health plan only if such rules are uni-
formly applicable and in accordance with applicable
State law and the number or percentage of eligible
individuals who, under the plan, are participants or
beneficiaries equals or exceeds a level which is deter-
mined in accordance with such rules.
(3) CONTRIBUTION
RULES.—For purposes of
paragraph (1)(B), contribution rules (if any) of an
insurer or HMO shall be treated as met with respect
to a group health plan only if such rules are in ac-
cordance with applicable State law.
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SEC. 132. GUARANTEED RENEWABILITY OF GROUP COV-
ERAGE.
(a) IN GENERAL.—Except as provided in this section,
if an insurer or health maintenance organization offers
health insurance coverage in the small or large group mar-
ket, the insurer or organization must renew or continue
in force such coverage at the option of the employer.
(b) GENERAL EXCEPTIONS.—An insurer or organiza-
tion may nonrenew or discontinue health insurance cov-
erage offered an employer based only on one or more of
the following:
(1) NONPAYMENT
OF
PREMIUMS.—The em-
ployer has failed to pay premiums or contributions
in accordance with the terms of the health insurance
coverage or the insurer or organization has not re-
ceived timely premium payments.
(2) FRAUD.—The employer has performed an
act or practice that constitutes fraud or made an in-
tentional misrepresentation of material fact under
the terms of the coverage.
(3) VIOLATION WITH PARTICIPATION OR CON-
TRIBUTION
RULES.—The employer has failed to
comply with a material plan provision relating to
participation or contribution rules in accordance
with section 131(d).
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(4) TERMINATION OF PLAN.—Subject to sub-
section (c), the insurer or organization is ceasing to
offer coverage in the small or large group market in
a State (or, in the case of a network plan or HMO,
in a geographic area).
(5) MOVEMENT OUTSIDE SERVICE AREA.—The
employer has changed the place of employment in
such manner that employees and dependents reside
and are employed outside the service area of the in-
surer or organization or outside the area for which
the insurer or organization is authorized to do busi-
ness.
Paragraph (5) shall apply to an insurer or HMO only if
it is applied uniformly without regard to the claims experi-
ence of employers and their employees (and their bene-
ficiaries) or the health status of such employees and bene-
ficiaries.
(c) EXCEPTIONS FOR UNIFORM TERMINATION OF
COVERAGE.—
(1) PARTICULAR TYPE OF COVERAGE NOT OF-
FERED.—In any case in which a insurer or HMO
decides to discontinue offering a particular type of
health insurance coverage in the small or large
group market, coverage of such type may be discon-
tinued by the insurer or organization only if—
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(A) the insurer or organization provides
notice to each employer provided coverage of
this type in such market (and participants and
beneficiaries covered under such coverage) of
such discontinuation at least 90 days prior to
the date of the discontinuation of such cov-
erage;
(B) the insurer or organization offers to
each employer in the small employer or large
employer market provided coverage of this type,
the option to purchase any other health insur-
ance coverage currently being offered by the in-
surer or organization for employers in such
market; and
(C) in exercising the option to discontinue
coverage of this type and in offering one or
more replacement coverage, the insurer or orga-
nization acts uniformly without regard to the
health status or insurability of participants or
beneficiaries covered or new participants or
beneficiaries who may become eligible for such
coverage.
(2) DISCONTINUANCE OF ALL COVERAGE.—
(A) IN
GENERAL.—Subject to subpara-
graph (C), in any case in which an insurer or
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HMO elects to discontinue offering all health
insurance coverage in the small group market
or the large group market, or both markets, in
a State, health insurance coverage may be dis-
continued by the insurer or organization only
if—
(i) the insurer or organization pro-
vides notice to the applicable State author-
ity and to each employer (and participants
and beneficiaries covered under such cov-
erage) of such discontinuation at least 180
days prior to the date of the expiration of
such coverage, and
(ii) all health insurance issued or de-
livered for issuance in the State in such
market (or markets) are discontinued and
coverage under such health insurance cov-
erage in such market (or markets) is not
renewed.
(B) PROHIBITION ON MARKET REENTRY.—
In the case of a discontinuation under subpara-
graph (A) in one or both markets, the insurer
or organization may not provide for the issu-
ance of any health insurance coverage in the
market and State involved during the 5-year pe-
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riod beginning on the date of the discontinu-
ation of the last health insurance coverage not
so renewed.
(d) EXCEPTION FOR UNIFORM MODIFICATION OF
COVERAGE.—At the time of coverage renewal, an insurer
or HMO may modify the coverage offered to a group
health plan in the group health market so long as such
modification is effective on a uniform basis among group
health plans with that type of coverage.
PART 2—AVAILABILITY OF INDIVIDUAL HEALTH
INSURANCE COVERAGE
SEC. 141. GUARANTEED AVAILABILITY OF INDIVIDUAL
HEALTH INSURANCE COVERAGE TO CERTAIN
INDIVIDUALS 
WITH 
PRIOR 
GROUP 
COV-
ERAGE.
(a) GOALS.—The goals of this section are—
(1) to guarantee that any qualifying individual
(as defined in subsection (b)(1)) is able to obtain
qualifying coverage (as defined in subsection (b)(2));
and
(2) to assure that qualifying individuals obtain-
ing such coverage receive credit for their prior cov-
erage toward the new coverage’s preexisting condi-
tion exclusion period (if any) in a manner consistent
with subsection (b)(3).
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(b) QUALIFYING INDIVIDUAL AND HEALTH INSUR-
ANCE COVERAGE DEFINED.—In this section—
(1) 
QUALIFYING
INDIVIDUAL.—The 
term
‘‘qualifying individual’’ means an individual—
(A)(i) for whom, as of the date on which
the individual seeks coverage under this section,
the aggregate of the qualified coverage periods
(as defined in section 101(b)(3)(B)) is 18 or
more months and (ii) whose most recent prior
coverage was under a group health plan, gov-
ernmental plan, or church plan (or health insur-
ance coverage offered in connection with any
such plan);
(B) who is not eligible for coverage under
(i) a group health plan, (ii) part A or part B
of title XVIII of the Social Security Act, or (iii)
a State plan under title XIX of such Act (or
any successor program), and does not have in-
dividual health insurance coverage;
(C) with respect to whom the most recent
coverage within the coverage period described in
subparagraph (A)(i) was not terminated based
on a factor described in paragraph (1) or (2) of
section 132(b);
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(D) if the individual had been offered the
option of continuation coverage under a
COBRA continuation provision or under a simi-
lar State program, who elected such coverage;
and
(E) who, if the individual elected such con-
tinuation coverage, has exhausted such continu-
ation coverage.
In applying subparagraph (A)(i), the reference in
section 101(b)(3)(B)(ii) to a 60-day break in cov-
erage is deemed a reference to a 60-day break in
any coverage described in section 101(b)(3)(B)(i).
(2) QUALIFYING COVERAGE.—
(A) IN GENERAL.—The term ‘‘qualifying
coverage’’ means, with respect to an insurer or
HMO in relation to an qualifying individual, in-
dividual health insurance coverage for which the
actuarial value of the benefits is not less than—
(i) the weighted average actuarial
value of the benefits provided by all the in-
dividual health insurance coverage issued
by the insurer or HMO in the State during
the previous year (not including coverage
issued under this section), or
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(ii) the weighted average of the actu-
arial value of the benefits provided by all
the individual health insurance coverage is-
sued by all insurers and HMOs in the
State during the previous year (not includ-
ing coverage issued under this section),
as elected by the plan or by the State under
subsection (c)(1).
(B) ASSUMPTIONS.—For purposes of sub-
paragraph (A), the actuarial value of benefits
provided under individual health insurance cov-
erage shall be calculated based on a standard-
ized population and a set of standardized utili-
zation and cost factors.
(3) CREDITING
FOR
PREVIOUS
COVERAGE.—
Crediting is consistent with this paragraph only if
any preexisting condition exclusion period is reduced
at least to the extent such a period would be reduced
if the coverage under this section were under a
group health plan to which section 101(a) applies. In
carrying out this subsection, provisions similar to
the provisions of section 101(c) shall apply.
(c) OPTIONAL STATE ESTABLISHMENT OF MECHA-
NISMS TO ACHIEVE GOALS OF GUARANTEEING AVAIL-
ABILITY OF COVERAGE.—
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(1) IN GENERAL.—Any State may establish, to
the extent of the State’s authority, public or private
mechanisms reasonably designed to meet the goals
specified in subsection (a). If a State implements
such a mechanism by the deadline specified in para-
graph (4), the State may elect to have such mecha-
nisms apply instead of having subsection (d)(3)
apply in the State. An election under this paragraph
shall be by notice from the chief executive officer of
the State to the Secretary of Health and Human
Services on a timely basis consistent with the dead-
lines specified in paragraph (4). In establishing what
is qualifying coverage under such a mechanism
under this subsection, a State may exercise the elec-
tion described in subsection (b)(2)(A) with respect to
each insurer or HMO in the State (or on a collective
basis after exercising such election for each such in-
surer or HMO).
(2) TYPES
OF
MECHANISMS.—State mecha-
nisms under this subsection may include one or
more (or a combination) of the following:
(A) Health insurance coverage pools or
programs authorized or established by the
State.
(B) Mandatory group conversion policies.
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(C) Guaranteed issue of one or more plans
of individual health insurance coverage to quali-
fying individuals.
(D) Open enrollment by one or more insur-
ers or HMOs.
The mechanisms described in the previous sentence
are not an exclusive list of the mechanisms (or com-
binations of mechanisms) that may be used under
this subsection.
(3) SAFE HARBOR FOR BENEFITS UNDER CUR-
RENT RISK POOLS.—In the case of a State that has
a health insurance coverage pool or risk pool in ef-
fect on March 12, 1996, and that implements the
mechanism described in paragraph (2)(A), the bene-
fits under such mechanism (or benefits the actuarial
value of which is not less than the actuarial value
of such current benefits, using the assumptions de-
scribed in subsection (b)(2)(B)) are deemed, for pur-
poses of this section, to constitute qualified coverage.
(4) DEADLINE FOR STATE IMPLEMENTATION.—
(A) IN
GENERAL.—Subject to subpara-
graph (B), the deadline under this paragraph is
July 1, 1997.
(B) EXTENSION
TO
PERMIT
LEGISLA-
TION.—The deadline under this paragraph is
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July 1, 1998, in the case of a State the legisla-
ture of which does not have a regular legislative
session at any time between January 1, 1997,
and June 30, 1997.
(C) CONSTRUCTION.—Nothing in this sec-
tion shall be construed as preventing a State
from—
(i) implementing guaranteed availabil-
ity mechanisms before the deadline,
(ii) continuing in effect mechanisms
that are in effect before the date of the en-
actment of this Act,
(iii) offering guaranteed availability of
coverage that is not qualifying coverage, or
(iv) offering guaranteed availability of
coverage to individuals who are not quali-
fying individuals.
(d) FALLBACK PROVISIONS.—
(1) NO STATE ELECTION.—If a State has not
provided notice to the Secretary of an election on a
timely basis under subsection (c), the Secretary shall
notify the State that paragraph (3) will be applied
in the State.
(2) 
PRELIMINARY
DETERMINATION
AFTER
STATE ELECTION.—If—
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(A) a State has provided notice of an elec-
tion on a timely basis under subsection (c), and
(B) the Secretary finds, after consultation
with the chief executive officer of the State and
the insurance commissioner or chief insurance
regulatory official of the State, that such a
mechanism (for which notice was provided) is
not reasonably designed to meet the goals speci-
fied in subsection (a),
the Secretary shall notify the State of such prelimi-
nary determination, of the consequences under para-
graph (3) of a failure to implement such a mecha-
nism, and permit the State a reasonable opportunity
in which to modify the mechanism (or to adopt an-
other mechanism) that is reasonably designed to
meet the goals specified in subsection (a). The Sec-
retary shall not make such a determination on any
basis other than the basis described in subparagraph
(B). If, after providing such notice and opportunity,
the Secretary finds that the State has not imple-
mented such a mechanism, the Secretary shall notify
the State that paragraph (3) will be applied in the
State.
(3) DESCRIPTION OF FALLBACK MECHANISM.—
As provided under paragraphs (1) and (2) and sub-
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ject to paragraph (5), each insurer or HMO in the
State involved that issues individual health insurance
coverage—
(A) shall offer qualifying health insurance
coverage, in which qualifying individuals obtain-
ing such coverage receive credit for their prior
coverage toward the new coverage’s preexisting
condition exclusion period (if any) in a manner
consistent with subsection (b)(3), to each quali-
fying individual in the State, and
(B) may not decline to issue such coverage
to such an individual based on health status
(except as permitted under paragraph (4)).
(4) APPLICATION OF NETWORK AND CAPACITY
LIMITS.—Under regulations, the provisions of sub-
sections (b) and (c) of section 131 shall apply to an
individual in the individual health insurance market
under this subsection in the same manner as they
apply under section 131 to an employer in the small
group market.
(5) TERMINATION OF FALLBACK MECHANISM.—
The provisions of this subsection shall cease to apply
to a State if the Secretary finds that a State has im-
plemented a mechanism that is reasonably designed
to meet the goals specified in subsection (a), and
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until the Secretary finds that such mechanism is no
longer being implemented.
(e) CONSTRUCTION.—
(1) PREMIUMS.—Nothing in this section shall
be construed to affect the determination of an in-
surer or HMO as to the amount of the premium
payable under an individual health insurance cov-
erage under applicable state law.
(2) MARKET REQUIREMENTS.—
(A) IN GENERAL.—The provisions of sub-
section (a) shall not be construed to require
that an insurer or HMO offering health insur-
ance coverage only in connection with a group
health plan or an association offer individual
health insurance coverage.
(B) CONVERSION
POLICIES.—An insurer
or HMO offering health insurance coverage in
connection with a group health plan under sub-
title A shall not be deemed to be an insurer or
HMO offering an individual health insurance
coverage solely because such insurer or HMO
offers a conversion policy.
(3) DISREGARD OF ASSOCIATION COVERAGE.—
An insurer or HMO that offers health insurance cov-
erage only in connection with a group health plan or
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in connection with individuals based on affiliation
with one or more bona fide associations is not con-
sidered, for purposes of this subtitle, to be offering
individual health insurance coverage.
(4) MARKETING
OF
PLANS.—Nothing in this
section shall be construed to prevent a State from
requiring insurer or HMOs offering individual health
insurance coverage to actively market such coverage.
SEC. 142. GUARANTEED RENEWABILITY OF INDIVIDUAL
HEALTH INSURANCE COVERAGE.
(a) GUARANTEED RENEWABILITY.—Subject to the
succeeding provisions of this section, an insurer or HMO
that provides individual health insurance coverage to an
individual shall renew or continue such coverage at the
option of the individual.
(b) NONRENEWAL PERMITTED IN CERTAIN CASES.—
An insurer or HMO may nonrenew or discontinue individ-
ual health insurance coverage of an individual only based
on one or more of the following:
(1) NONPAYMENT.—The individual fails to pay
payment of premiums or contributions in accordance
with the terms of the coverage or the insurer or or-
ganization has not failed to receive timely premium
payments.
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(2) FRAUD.—The individual has performed an
act or practice that constitutes fraud or made an in-
tentional misrepresentation of material fact under
the terms of the coverage.
(3) TERMINATION OF COVERAGE.—Subject to
subsection (c), the insurer or HMO is ceasing to
offer health insurance coverage in the individual
market in a State (or, in the case of a network plan
or HMO, in a geographic area).
(4) MOVEMENT OUTSIDE SERVICE AREA.—The
individual has changed residence and resides outside
the service area of the insurer or organization or
outside the area for which the insurer or organiza-
tion is authorized to do business.
Paragraph (4) shall apply to an insurer or HMO only if
it is applied uniformly without regard to the claims experi-
ence of employers and their employees (and their bene-
ficiaries) or the health status of such employees and bene-
ficiaries.
(c) TERMINATION OF INDIVIDUAL COVERAGE.—The
provisions of section 132(c) shall apply to this section in
the same manner as they apply under section 132, except
that any reference to an employer or market is deemed
a reference to the covered individual or the individual mar-
ket, respectively.
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(d) EXCEPTION FOR UNIFORM MODIFICATION OF
COVERAGE.—The provisions of section 132(d) shall apply
to individual health insurance coverage in the individual
market under this section in the same manner as it applies
to health insurance coverage offered in connection with a
group health plan in the group market under such section.
PART 3—ENFORCEMENT
SEC. 151. INCORPORATION OF PROVISIONS FOR STATE EN-
FORCEMENT WITH FEDERAL FALLBACK AU-
THORITY.
The provisions of paragraphs (1) and (2) of section
104(c) shall apply to enforcement of requirements in each
section in part 1 or part 2 with respect to insurers and
HMOs regulated by a State in the same manner as such
provisions apply to enforcement of requirements in section
101, 102, or 103 with respect to insurers and HMOs regu-
lated by a State.
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Subtitle C—Affordable and Avail-
able Health Coverage Through
Multiple Employer Pooling Ar-
rangements
SEC. 161. CLARIFICATION OF DUTY OF THE SECRETARY OF
LABOR TO IMPLEMENT PROVISIONS OF CUR-
RENT LAW PROVIDING FOR EXEMPTIONS
AND SOLVENCY STANDARDS FOR MULTIPLE
EMPLOYER HEALTH PLANS.
(a) RULES GOVERNING REGULATION OF MULTIPLE
EMPLOYER HEALTH PLANS.—Subtitle B of title I of the
Employee Retirement Income Security Act of 1974 (as
amended by the preceding provisions of this title) is
amended by inserting after part 6 the following new part:
‘‘PART 7—RULES GOVERNING REGULATION OF
MULTIPLE EMPLOYER HEALTH PLANS
‘‘SEC. 701. DEFINITIONS.
‘‘For purposes of this part—
‘‘(1) FULLY
INSURED.—A particular benefit
under a group health plan or a multiple employer
welfare arrangement is ‘fully insured’ if such benefit
(irrespective of any recourse available against other
parties) is provided by an insurer or a health main-
tenance organization in a manner so that such bene-
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fit constitutes insurance regulated by the law of a
State (within the meaning of section 514(b)(2)(A)).
‘‘(2) INSURER.—The term ‘insurer’ means an
insurance company, insurance service, or insurance
organization which is licensed to engage in the busi-
ness of insurance in a State and which is subject to
State law which regulates insurance (within the
meaning of section 514(b)(2)(A)).
‘‘(3) HEALTH MAINTENANCE ORGANIZATION.—
The 
terms 
‘health 
maintenance 
organization’
means—
‘‘(A) a Federally qualified health mainte-
nance organization (as defined in section
1301(a) of the Public Health Service Act (42
U.S.C. 300e(a))),
‘‘(B) an organization recognized under
State law as a health maintenance organization,
or
‘‘(C) a similar organization regulated
under State law for solvency in the same man-
ner and to the same extent as such a health
maintenance organization,
if it is subject to State law which regulates insur-
ance (within the meaning of section 514(b)(2)(A)).
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‘‘(4) MULTIPLE
EMPLOYER
HEALTH
PLAN.—
The term ‘multiple employer health plan’ means a
multiple employer welfare arrangement which pro-
vides medical care and which is or has been exempt
under section 514(b)(6)(B).
‘‘(5) PARTICIPATING
EMPLOYER.—The term
‘participating employer’ means, in connection with a
multiple employer welfare arrangement, any em-
ployer if any of its employees, or any of the individ-
uals who are dependents (as defined under the terms
of the arrangement) of its employees, are or were
covered under such arrangement in connection with
the employment of the employees.
‘‘(6) SPONSOR.—The term ‘sponsor’ means, in
connection with a multiple employer welfare arrange-
ment, the association or other entity which estab-
lishes or maintains the arrangement.
‘‘(7) STATE INSURANCE COMMISSIONER.—The
term ‘State insurance commissioner’ means the in-
surance commissioner (or similar official) of a State.
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‘‘SEC. 702. CLARIFICATION OF DUTY OF THE SECRETARY TO
IMPLEMENT PROVISIONS OF CURRENT LAW
PROVIDING 
FOR 
EXEMPTIONS 
AND 
SOL-
VENCY 
STANDARDS 
FOR 
MULTIPLE 
EM-
PLOYER HEALTH PLANS.
‘‘(a) TREATMENT AS EMPLOYEE WELFARE BENEFIT
PLAN WHICH IS A GROUP HEALTH PLAN.—
‘‘(1) IN GENERAL.—A multiple employer wel-
fare arrangement—
‘‘(A) under which the benefits consist sole-
ly of medical care (disregarding such incidental
benefits as the Secretary shall specify by regu-
lation), and
‘‘(B) under which some or all benefits are
not fully insured,
shall be treated for purposes of subtitle A and the
other parts of this title as an employee welfare bene-
fit plan which is a group health plan if the arrange-
ment is exempt under section 514(b)(6)(B) in ac-
cordance with this part.
‘‘(2) EXCEPTION.—In the case of a multiple
employer welfare arrangement which would be de-
scribed in section 3(40)(A)(i) but solely for the fail-
ure to meet the requirements of section 3(40)(C)(ii),
paragraph (1) shall apply with respect to such ar-
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rangement, but only with respect to benefits pro-
vided thereunder which constitute medical care.
‘‘(b) TREATMENT UNDER PREEMPTION RULES.—
‘‘(1) IN
GENERAL.—The Secretary shall pre-
scribe 
regulations 
described 
in 
section
514(b)(6)(B)(i), applicable to multiple employer wel-
fare arrangements described in subparagraphs (A)
and (B) of subsection (a)(1), providing a procedure
for 
granting 
exemptions 
from 
section
514(b)(6)(A)(ii) with respect to such arrangements.
Under such regulations, any such arrangement
treated under subsection (a) as an employee welfare
benefit plan shall be deemed to be an arrangement
described in section 514(b)(6)(B)(ii).
‘‘(2) STANDARDS.—Under the procedure pre-
scribed pursuant to paragraph (1), the Secretary
shall grant an arrangement described in subsection
(a) an exemption described in subsection (a) only if
the Secretary finds that—
‘‘(A) such exemption—
‘‘(i) is administratively feasible,
‘‘(ii) is not adverse to the interests of
the individuals covered under the arrange-
ment, and
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‘‘(iii) is protective of the rights and
benefits of the individuals covered under
the arrangement,
‘‘(B) the application for the exemption
meets the requirements of paragraph (3), and
‘‘(C) the requirements of sections 703 and
704 are met with respect to the arrangement.
‘‘(3) INFORMATION TO BE INCLUDED IN APPLI-
CATION FOR EXEMPTION.—An application for an ex-
emption described in subsection (a) meets the re-
quirements of this paragraph only if it includes, in
a manner and form prescribed in regulations of the
Secretary, at least the following information:
‘‘(A) IDENTIFYING
INFORMATION.—The
names and addresses of—
‘‘(i) the sponsor, and
‘‘(ii) the members of the board of
trustees of the arrangement.
‘‘(B) STATES IN WHICH ARRANGEMENT IN-
TENDS TO DO BUSINESS.—The States in which
individuals covered under the arrangement are
to be located and the number of such individ-
uals expected to be located in each such State.
‘‘(C) BONDING REQUIREMENTS.—Evidence
provided by the board of trustees that the bond-
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ing requirements of section 412 will be met as
of the date of the application or (if later) com-
mencement of operations.
‘‘(D) PLAN DOCUMENTS.—A copy of the
documents governing the arrangement (includ-
ing any bylaws and trust agreements), the sum-
mary plan description, and other material de-
scribing the benefits and coverage that will be
provided to individuals covered under the ar-
rangement.
‘‘(E) AGREEMENTS WITH SERVICE PROVID-
ERS.—A copy of any agreements between the
arrangement and contract administrators and
other service providers.
‘‘(F) FUNDING REPORT.—A report setting
forth information determined as of a date with-
in the 120-day period ending with the date of
the application, including the following:
‘‘(i) RESERVES.—A statement, cer-
tified by the board of trustees of the ar-
rangement, and a statement of actuarial
opinion, signed by a qualified actuary, that
all applicable requirements of section 705
are or will be met in accordance with regu-
lations which the Secretary shall prescribe.
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‘‘(ii) ADEQUACY
OF
CONTRIBUTION
RATES.—A statement of actuarial opinion,
signed by a qualified actuary, which sets
forth a description of the extent to which
contribution rates are adequate to provide
for the payment of all obligations and the
maintenance of required reserves under the
arrangement for the 12-month period be-
ginning with such date within such 120-
day period, taking into account the ex-
pected coverage and experience of the ar-
rangement. If the contribution rates are
not fully adequate, the statement of actu-
arial opinion shall indicate the extent to
which the rates are inadequate and the
changes needed to ensure adequacy.
‘‘(iii) 
CURRENT
AND
PROJECTED
VALUE
OF
ASSETS
AND
LIABILITIES.—A
statement of actuarial opinion signed by a
qualified actuary, which sets forth the cur-
rent value of the assets and liabilities accu-
mulated under the arrangement and a pro-
jection of the assets, liabilities, income,
and expenses of the arrangement for the
12-month period referred to in clause (ii).
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The income statement shall identify sepa-
rately the arrangement’s administrative ex-
penses and claims.
‘‘(iv) COSTS
OF
COVERAGE
TO
BE
CHARGED
AND
OTHER
EXPENSES.—A
statement of the costs of coverage to be
charged, 
including 
an 
itemization 
of
amounts for administration, reserves, and
other expenses associated with the oper-
ation of the arrangement.
‘‘(v) 
OTHER
INFORMATION.—Any
other information which may be prescribed
in regulations of the Secretary as nec-
essary to carry out the purposes of this
part.
‘‘(4) FILING FEE.—Under the procedure pre-
scribed pursuant to paragraph (1), a multiple em-
ployer welfare arrangement shall pay to the Sec-
retary at the time of filing an application for an ex-
emption referred to in subsection (a) a filing fee in
the amount of $5,000, which shall be available, to
the extent provided in appropriation Acts, to the
Secretary for the sole purpose of administering the
exemption procedures applicable with respect to such
arrangement.
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‘‘(5) CLASS EXEMPTION TREATMENT FOR EX-
ISTING LARGE ARRANGEMENTS.—Under the proce-
dure prescribed pursuant to paragraph (1), if—
‘‘(A) at the time of application for an ex-
emption under section 514(b)(6)(B) with re-
spect to an arrangement which has been in ex-
istence as of the date of the enactment of the
Health Coverage Availability and Affordability
Act of 1996 for at least 3 years, either (A) the
arrangement covers at least 1,000 participants
and beneficiaries, or (B) with respect to the ar-
rangement there are at least 2,000 employees of
eligible participating employers,
‘‘(B) a complete application for the exemp-
tion with respect to the arrangement has been
filed and is pending, and
‘‘(C) the application meets such require-
ments (if any) as the Secretary may provide
with respect to class exemptions under this sub-
section,
the exemption shall be treated as having been grant-
ed with respect to the arrangement unless and until
the Secretary provides appropriate notice that the
exemption has been denied.
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‘‘(c) 
FILING
NOTICE
OF
EXEMPTION
WITH
STATES.—An 
exemption 
granted 
under 
section
514(b)(6)(B) to a multiple employer welfare arrangement
shall not be effective unless written notice of such exemp-
tion is filed with the State insurance commissioner of each
State in which at least 5 percent of the individuals covered
under the arrangement are located. For purposes of this
subsection, an individual shall be considered to be located
in the State in which a known address of such individual
is located or in which such individual is employed. The
Secretary may by regulation provide in specified cases for
the application of the preceding sentence with lesser per-
centages in lieu of such 5 percent amount.
‘‘(d) NOTICE OF MATERIAL CHANGES.—In the case
of any multiple employer welfare arrangement exempt
under section 514(b)(6)(B), descriptions of material
changes in any information which was required to be sub-
mitted with the application for the exemption under this
part shall be filed in such form and manner as shall be
prescribed in regulations of the Secretary. The Secretary
may require by regulation prior notice of material changes
with respect to specified matters which might serve as the
basis for suspension or revocation of the exemption.
‘‘(e) REPORTING REQUIREMENTS.—Under regula-
tions of the Secretary, the requirements of sections 102,
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103, and 104 shall apply with respect to any multiple em-
ployer welfare arrangement which is or has been exempt
under section 514(b)(6)(B) in the same manner and to
the same extent as such requirements apply to employee
welfare benefit plans, irrespective of whether such exemp-
tion continues in effect. The annual report required under
section 103 for any plan year in the case of any such mul-
tiple employer welfare arrangement shall also include in-
formation described in subsection (b)(3)(F) with respect
to 
the 
plan 
year 
and, 
notwithstanding 
section
104(a)(1)(A), shall be filed not later than 90 days after
the close of the plan year.
‘‘(f) ENGAGEMENT OF QUALIFIED ACTUARY.—The
board of trustees of each multiple employer welfare ar-
rangement which is or has been exempt under section
514(b)(6)(B) shall engage, on behalf of all covered individ-
uals, a qualified actuary who shall be responsible for the
preparation of the materials comprising information nec-
essary to be submitted by a qualified actuary under this
part. The qualified actuary shall utilize such assumptions
and techniques as are necessary to enable such actuary
to form an opinion as to whether the contents of the mat-
ters reported under this part—
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‘‘(1) are in the aggregate reasonably related to
the experience of the arrangement and to reasonable
expectations, and
‘‘(2) represent such actuary’s best estimate of
anticipated experience under the arrangement.
The opinion by the qualified actuary shall be made with
respect to, and shall be made a part of, the annual report.
‘‘SEC. 
703. 
REQUIREMENTS 
RELATING 
TO 
SPONSORS,
BOARDS OF TRUSTEES, AND PLAN OPER-
ATIONS.
‘‘(a) IN GENERAL.—A complete application for an ex-
emption under section 514(b)(6)(B) shall include informa-
tion which the Secretary determines to be complete and
accurate and sufficient to demonstrate that the following
requirements are met with respect to the arrangement:
‘‘(1) SPONSOR.—The sponsor is, and has been
(together with its immediate predecessor, if any) for
a continuous period of not less than 5 years before
the date of the application, organized and main-
tained in good faith, with a constitution and bylaws
specifically stating its purpose and providing for
periodic meetings on at least an annual basis, as a
trade association, an industry association, a profes-
sional association, or a chamber of commerce (or
similar business group, including a corporation or
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similar organization that operates on a cooperative
basis (within the meaning of section 1381 of the In-
ternal Revenue Code of 1986)), for substantial pur-
poses other than that of obtaining or providing med-
ical care (within the meaning of section 607(1)), and
the applicant demonstrates to the satisfaction of the
Secretary that the sponsor is established as a per-
manent entity which receives the active support of
its members and collects dues or contributions from
its members on a periodic basis, without condi-
tioning such dues or contributions on the basis of
the health status of the employees of such members
or the dependents of such employees or on the basis
of participation in a group health plan. Any sponsor
consisting of an association of entities meeting the
preceding requirements of this paragraph shall be
treated as meeting the requirements of this para-
graph.
‘‘(2) BOARD OF TRUSTEES.—The arrangement
is operated, pursuant to a trust agreement, by a
board of trustees which has complete fiscal control
over the arrangement and which is responsible for
all operations of the arrangement, and the board of
trustees has in effect rules of operation and financial
controls, based on a 3-year plan of operation, ade-
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quate to carry out the terms of the arrangement and
to meet all requirements of this title applicable to
the arrangement. The members of the board of
trustees are individuals selected from individuals
who are the owners, officers, directors, or employees
of the participating employers or who are partners
in the participating employers and actively partici-
pate in the business. No such member is an owner,
officer, director, or employee of, or partner in, a con-
tract administrator or other service provider to the
arrangement, except that officers or employees of a
sponsor which is a service provider (other than a
contract administrator) to the arrangement may be
members of the board if they constitute not more
than 25 percent of the membership of the board and
they do not provide services to the arrangement
other than on behalf of the sponsor. The board has
sole authority to approve applications for participa-
tion in the arrangement and to contract with a serv-
ice provider to administer the day-to-day affairs of
the arrangement.
‘‘(3) COVERED
PERSONS.—The instruments
governing the arrangement include a written instru-
ment which provides that, effective upon becoming
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an 
arrangement 
exempt 
under 
section
514(b)(6)(B)—
‘‘(A) all participating employers must be
members or affiliated members of the sponsor,
except that, in the case of a sponsor which is
a professional association or other individual-
based association, if at least one of the officers,
directors, or employees of an employer, or at
least one of the individuals who are partners in
an employer and who actively participates in
the business, is a member or affiliated member
of the sponsor, participating employers may
also include such employer,
‘‘(B) all individuals thereafter commencing
coverage under the arrangement must be—
‘‘(i) active or retired owners (includ-
ing self-employed individuals), officers, di-
rectors, or employees of, or partners in,
participating employers, or
‘‘(ii) the beneficiaries of individuals
described in clause (i), and
‘‘(C) no participating employer may pro-
vide health insurance coverage in the individual
market for any employee not covered under the
arrangement which is similar to the coverage
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contemporaneously provided to employees of the
employer under the arrangement, if such exclu-
sion of the employee from coverage under the
arrangement is based in whole or in part on the
health status of the employee and such em-
ployee would, but for such exclusion on such
basis, be eligible for coverage under the ar-
rangement.
‘‘(4) INCLUSION OF ELIGIBLE EMPLOYERS AND
EMPLOYEES.—No employer described in paragraph
(3) is excluded as a participating employer (except
to the extent that requirements of the type referred
to in section 131(d)(2) of the Health Coverage
Availability and Affordability Act of 1996 are not
met) and the requirements of section 103 of such
Act (as referred to in section 104(b)(1) of such Act)
are met.
‘‘(5) RESTRICTION ON VARIATIONS OF PREMIUM
RATES.—Premium rates under the arrangement with
respect to any particular employer do not vary on
the basis of the claims experience of such employer
alone.
‘‘(b) TREATMENT OF FRANCHISE NETWORKS.—In
the case of a multiple employer welfare arrangement which
is established and maintained by a franchisor for a fran-
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chise network consisting of its franchisees, the require-
ments of subsection (a)(1) shall not apply with respect to
such network in any case in which such requirements
would be met if the franchisor were deemed to be the spon-
sor referred to in subsection (a)(1), such network were
deemed to be an association described in subsection (a)(1),
and each franchisee were deemed to be a member (of the
association and the sponsor) referred to in subsection
(a)(1).
‘‘(c) CERTAIN COLLECTIVELY BARGAINED ARRANGE-
MENTS.—In the case of a multiple employer welfare ar-
rangement in existence on March 6, 1996, which would
be described in section 3(40)(A)(i) but solely for the fail-
ure to meet the requirements of section 3(40)(C)(ii) or
(to the extent provided in regulations of the Secretary)
solely for the failure to meet the requirements of subpara-
graph (D) or (F) of section 3(40)—
‘‘(1) subsection (a)(1) shall not apply, and
‘‘(2) the joint board of trustees shall be consid-
ered the board of trustees required under subsection
(a)(2).
‘‘(d) CERTAIN ARRANGEMENTS NOT MEETING SIN-
GLE EMPLOYER REQUIREMENT.—
‘‘(1) IN GENERAL.—In any case in which the
majority of the employees covered under a multiple
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employer welfare arrangement are employees of a
single employer (within the meaning of clauses (i)
and (ii) of section 3(40)(B)), if all other employees
covered under the arrangement are employed by em-
ployers who are related to such single employer—
‘‘(A) subsection (a)(1) shall not apply if
the sponsor of the arrangement is the person
who would be the plan sponsor if the related
employers were disregarded in determining
whether the requirements of section 3(40)(B)
are met, and
‘‘(B) subsection (a)(2) shall be treated as
satisfied if the board of trustees is the named
fiduciary in connection with the arrangement.
‘‘(2) RELATED EMPLOYERS.—For purposes of
paragraph (1), employers are ‘related’ if there is
among all such employers a common ownership in-
terest or a substantial commonality of business oper-
ations based on common suppliers or customers.
‘‘SEC. 704. OTHER REQUIREMENTS FOR EXEMPTION.
‘‘A multiple employer welfare arrangement exempt
under section 514(b)(6)(B) shall meet the following re-
quirements:
‘‘(1) 
CONTENTS
OF
GOVERNING
INSTRU-
MENTS.—The instruments governing the arrange-
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ment include a written instrument, meeting the re-
quirements of an instrument required under section
402(a)(1), which—
‘‘(A) provides that the board of trustees
serves as the named fiduciary required for plans
under section 402(a)(1) and serves in the ca-
pacity of a plan administrator (referred to in
section 3(16)(A)),
‘‘(B) provides that the sponsor of the ar-
rangement is to serve as plan sponsor (referred
to in section 3(16)(B)), and
‘‘(C) incorporates the requirements of sec-
tion 705.
‘‘(2) CONTRIBUTION RATES.—The contribution
rates referred to in section 702(b)(3)(F)(ii) are ade-
quate.
‘‘(3) 
REGULATORY
REQUIREMENTS.—Such
other requirements as the Secretary may prescribe
by regulation as necessary to carry out the purposes
of this part.
‘‘SEC. 705. MAINTENANCE OF RESERVES.
‘‘(a) IN GENERAL.—Each multiple employer welfare
arrangement which is or has been exempt under section
514(b)(6)(B) and under which benefits are not fully in-
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sured shall establish and maintain reserves, consisting
of—
‘‘(1) a reserve sufficient for unearned contribu-
tions,
‘‘(2) a reserve sufficient for benefit liabilities
which have been incurred, which have not been satis-
fied, and for which risk of loss has not yet been
transferred, and for expected administrative costs
with respect to such benefit liabilities, and
‘‘(3) a reserve, in an amount recommended by
the qualified actuary, for any other obligations of
the arrangement.
‘‘(b) MINIMUM AMOUNT FOR CERTAIN RESERVES.—
The total of the reserves described in subsection (a)(2)
shall not be less than an amount equal to the greater of—
‘‘(1) 25 percent of expected incurred claims and
expenses for the plan year, or
‘‘(2) $400,000.
‘‘(c) REQUIRED
MARGIN.—In determining the
amounts of reserves required under this section in connec-
tion with any multiple employer welfare arrangement, the
qualified actuary shall include a margin for error and
other fluctuations taking into account the specific cir-
cumstances of such arrangement.