I 
109TH CONGRESS 
1ST SESSION H. R. 2002
To amend the Internal Revenue Code of 1986 to provide tax incentives 
to encourage small business health plans, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
APRIL 28, 2005
Mr. MOORE of Kansas introduced the following bill; which was referred to the 
Committee on Ways and Means, and in addition to the Committees on 
Energy and Commerce and Small Business, for a period to be subse-
quently determined by the Speaker, in each case for consideration of such 
provisions as fall within the jurisdiction of the committee concerned 
A BILL 
To amend the Internal Revenue Code of 1986 to provide 
tax incentives to encourage small business health plans, 
and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Small Business Health 
Insurance Affordability Act of 2005’’.
SEC. 2. CREDIT FOR HEALTH INSURANCE EXPENSES OF 
SMALL BUSINESSES. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of 
1986 (relating to business-related credits) is amended by 
adding at the end the following: 
‘‘SEC. 45J. SMALL BUSINESS HEALTH INSURANCE EX-
PENSES. 
‘‘(a) GENERAL RULE.—For purposes of section 38, 
in the case of a small employer, the health insurance credit 
determined under this section for the taxable year is an 
amount equal to the applicable percentage of the expenses 
paid or incurred by the taxpayer during the taxable year 
for health insurance coverage for such year for employees 
of such employer. 
‘‘(b) APPLICABLE PERCENTAGE.—For purposes of 
subsection (a), the applicable percentage is—
‘‘(1) in the case of insurance purchased as a 
member of a qualified health benefit purchasing coa-
lition (as defined in section 9841), 40 percent, and 
‘‘(2) in the case of insurance not described in 
paragraph (1), 30 percent. 
‘‘(c) LIMITATIONS.—
‘‘(1) PER
EMPLOYEE
DOLLAR
LIMITATION.—
The amount of expenses taken into account under
subsection (a) with respect to any employee for any 
taxable year shall not exceed—
‘‘(A) in the case of insurance purchased as 
a member of a coalition referred to in sub-
section (b)(1)—
‘‘(i) $800 in the case of self-only cov-
erage, and 
‘‘(ii) $2,000 in the case of family cov-
erage, and 
‘‘(B) in any other case—
‘‘(i) $600 in the case of self-only cov-
erage, and 
‘‘(ii) $1,500 in the case of family cov-
erage. 
In the case of an employee who is covered for only 
a portion of such taxable year, the limitation under 
the preceding sentence shall be an amount which 
bears the same ratio to such limitation (determined 
without regard to this sentence) as such portion 
bears to the entire taxable year. 
‘‘(2) PERIOD OF COVERAGE.—Expenses may be 
taken into account under subsection (a) only with 
respect to coverage for the 4-year period beginning 
on the later of—
‘‘(A) the date of the enactment of this sec-
tion, or 
‘‘(B) the earliest date that the employee is 
covered under the plan. 
‘‘(3) EMPLOYER MUST BEAR 65 PERCENT OF 
COST AND COVER 70 PERCENT OF QUALIFIED EM-
PLOYEES.—Expenses may be taken into account 
under subsection (a) only if—
‘‘(A) at least 65 percent of the cost of the 
coverage (without regard to this section) is 
borne by the employer, and 
‘‘(B) the plan provides health insurance 
coverage to at least 70 percent of the qualified 
employees of such employer. 
‘‘(d) DEFINITIONS.—For purposes of this section—
‘‘(1) HEALTH
INSURANCE
COVERAGE.—The 
term ‘health insurance coverage’ has the meaning 
given such term by section 9832(b)(1). 
‘‘(2) QUALIFIED EMPLOYEE.—
‘‘(A) IN
GENERAL.—The term ‘qualified 
employee’ means any employee of an employer 
if the annual rate of such employee’s compensa-
tion (as defined in section 414(s)) does not ex-
ceed $40,000.
‘‘(B) TREATMENT
OF
CERTAIN
EMPLOY-
EES.—The term ‘employee’ shall include a 
leased employee within the meaning of section 
414(n). 
‘‘(C) REDUCTION OF CREDIT FOR EMPLOY-
EES EARNING MORE THAN $30,000.—If the an-
nual rate of an employee’s compensation (as de-
fined in section 414(s)) exceeds $30,000, the 
applicable limitation under subsection (c)(1) 
(determined without regard to this clause) shall 
be reduced (but not below zero) by an amount 
which bears the same ratio to such limitation as 
such excess bears to $10,000. 
‘‘(D) EMPLOYEES
HAVING
FAMILY
COV-
ERAGE.—In the case of an employee who has 
family coverage—
‘‘(i) subparagraph (A) shall be applied 
by substituting ‘$50,000’ for ‘$40,000’, 
and 
‘‘(ii) subparagraph (C) shall be ap-
plied 
by 
substituting 
‘$40,000’ 
for 
‘$30,000’. 
‘‘(3) SMALL EMPLOYER.—The term ‘small em-
ployer’ has the meaning given to such term by sec-
tion 4980D(d)(2); except that only qualified employ-
ees shall be taken into account. 
‘‘(e) SPECIAL RULES.—
‘‘(1) CERTAIN RULES MADE APPLICABLE.—For 
purposes of this section, rules similar to the rules of 
section 52 shall apply. 
‘‘(2) AMOUNTS
PAID
UNDER
SALARY
REDUC-
TION ARRANGEMENTS.—No amount paid or incurred 
pursuant to a salary reduction arrangement shall be 
taken into account under subsection (a). 
‘‘(3) INFLATION ADJUSTMENT.—In the case of 
any taxable year beginning in a calendar year after 
2006, each dollar amount contained in subsections 
(c)(1) and (d)(2)(B) 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 2005’ for 
‘calendar year 1992’ in subparagraph (B) 
thereof. 
Any increase determined under the preceding sen-
tence shall be rounded to the nearest multiple of 
$50.
‘‘(f) TERMINATION.—This section shall not apply to 
expenses paid or incurred by an employer with respect to 
any arrangement established on or after January 1, 
2010.’’. 
(b) CREDIT TO BE PART OF GENERAL BUSINESS 
CREDIT.—Section 38(b) of such Code (relating to current 
year business credit) is amended by striking ‘‘plus’’ at the 
end of paragraph (18), by striking the period at the end 
of paragraph (19) and inserting ‘‘, plus’’, and by adding 
at the end the following: 
‘‘(20) in the case of a small employer (as de-
fined in section 45J(d)(3)), the health insurance 
credit determined under section 45J(a).’’. 
(c) DENIAL OF DOUBLE BENEFIT.—Section 280C of 
such Code is amended by adding at the end the following 
new subsection: 
‘‘(e) CREDIT FOR SMALL BUSINESS HEALTH INSUR-
ANCE EXPENSES.—
‘‘(1) IN GENERAL.—No deduction shall be al-
lowed for that portion of the expenses (otherwise al-
lowable as a deduction) taken into account in deter-
mining the credit under section 45J for the taxable 
year which is equal to the amount of the credit de-
termined for such taxable year under section 45J(a).
‘‘(2) CONTROLLED
GROUPS.—Persons treated 
as a single employer under subsection (a) or (b) of 
section 52 shall be treated as 1 person for purposes 
of this section.’’. 
(d) CLERICAL AMENDMENT.—The table of sections 
for subpart D of part IV of subchapter A of chapter 1 
of such Code is amended by adding at the end the fol-
lowing:
‘‘Sec. 45J. Small business health insurance expenses.’’.
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to amounts paid or incurred in tax-
able years beginning after December 31, 2005. 
SEC. 3. CERTAIN GRANTS BY PRIVATE FOUNDATIONS TO 
QUALIFIED HEALTH BENEFIT PURCHASING 
COALITIONS. 
(a) IN GENERAL.—Section 4942 of the Internal Rev-
enue Code of 1986 (relating to taxes on failure to dis-
tribute income) is amended by adding at the end the fol-
lowing: 
‘‘(k) CERTAIN QUALIFIED HEALTH BENEFIT PUR-
CHASING COALITION DISTRIBUTIONS.—
‘‘(1) IN GENERAL.—For purposes of subsection 
(g), sections 170, 501, 507, 509, and 2522, and this 
chapter, a qualified health benefit purchasing coali-
tion distribution by a private foundation shall be
considered to be a distribution for a charitable pur-
pose. 
‘‘(2) 
QUALIFIED
HEALTH
BENEFIT
PUR-
CHASING COALITION DISTRIBUTION.—For purposes 
of paragraph (1)—
‘‘(A) IN
GENERAL.—The term ‘qualified 
health benefit purchasing coalition distribution’ 
means any amount paid or incurred by a pri-
vate foundation to or on behalf of a qualified 
health benefit purchasing coalition (as defined 
in section 9841) for purposes of payment or re-
imbursement of amounts paid or incurred in 
connection with the establishment and mainte-
nance of such coalition. 
‘‘(B) EXCLUSIONS.—Such term shall not 
include any amount used by a qualified health 
benefit purchasing coalition (as so defined)—
‘‘(i) for the purchase of real property, 
‘‘(ii) as payment to, or for the benefit 
of, members (or employees or affiliates of 
such members) of such coalition, or 
‘‘(iii) for any expense paid or incurred 
more than 48 months after the date of es-
tablishment of such coalition.
‘‘(3) TERMINATION.—This subsection shall not 
apply—
‘‘(A) to qualified health benefit purchasing 
coalition distributions paid or incurred after 
December 31, 2010, and 
‘‘(B) with respect to start-up costs of a co-
alition which are paid or incurred after Decem-
ber 31, 2012.’’. 
(b) QUALIFIED HEALTH BENEFIT PURCHASING CO-
ALITION.—
(1) IN GENERAL.—Chapter 100 of such Code 
(relating to group health plan requirements) is 
amended by adding at the end the following new 
subchapter: 
‘‘Subchapter D—Qualified Health Benefit 
Purchasing Coalition
‘‘Sec. 9841. Qualified health benefit purchasing coalition.
‘‘SEC. 9841. QUALIFIED HEALTH BENEFIT PURCHASING CO-
ALITION. 
‘‘(a) IN GENERAL.—A qualified health benefit pur-
chasing coalition is a private not-for-profit corporation 
which—
‘‘(1) sells health insurance through State li-
censed health insurance issuers in the State in which
the employers to which such coalition is providing 
insurance are located, and 
‘‘(2) establishes to the Secretary, under State 
certification procedures or other procedures as the 
Secretary may provide by regulation, that such coali-
tion meets the requirements of this section. 
‘‘(b) BOARD OF DIRECTORS.—
‘‘(1) IN GENERAL.—Each purchasing coalition 
under this section shall be governed by a Board of 
Directors. 
‘‘(2) ELECTION.—The Secretary shall establish 
procedures governing election of such Board. 
‘‘(3) MEMBERSHIP.—The Board of Directors 
shall—
‘‘(A) be composed of representatives of the 
members of the coalition, in equal number, in-
cluding small employers and employee rep-
resentatives of such employers, but 
‘‘(B) not include other interested parties, 
such as health care service providers, health in-
surers, or insurance agents or brokers which 
may have a conflict of interest with the pur-
poses of the coalition. 
‘‘(c) MEMBERSHIP OF COALITION.—
‘‘(1) IN
GENERAL.—A purchasing coalition 
shall accept all small employers residing within the 
area served by the coalition as members if such em-
ployers request such membership. 
‘‘(2) OTHER MEMBERS.—The coalition, at the 
discretion of its Board of Directors, may be open to 
individuals and large employers. 
‘‘(3) VOTING.—Members of a purchasing coali-
tion shall have voting rights consistent with the rules 
established by the State. 
‘‘(d) DUTIES OF PURCHASING COALITIONS.—Each 
purchasing coalition shall—
‘‘(1) enter into agreements with small employ-
ers (and, at the discretion of its Board, with individ-
uals and other employers) to provide health insur-
ance benefits to employees and retirees of such em-
ployers, 
‘‘(2) where it is feasible and advisable, enter 
into agreements with 3 or more unaffiliated, quali-
fied licensed health plans, to offer benefits to mem-
bers, 
‘‘(3) offer to members at least 1 open enroll-
ment period of at least 30 days per calendar year,
‘‘(4)(A) serve a geographical area which, under 
the State certification procedures referred to in sub-
section (a)(2), is significant, and 
‘‘(B) market to all eligible members in that 
area, and 
‘‘(5) carry out other functions provided for 
under this section. 
‘‘(e) LIMITATION ON ACTIVITIES.—A purchasing coa-
lition shall not—
‘‘(1) perform any activity (including certifi-
cation or enforcement) relating to compliance or li-
censing of health plans, 
‘‘(2) assume insurance or financial risk in rela-
tion to any health plan, or 
‘‘(3) perform other activities identified by the 
State as being inconsistent with the performance of 
its duties under this section. 
‘‘(f) ADDITIONAL REQUIREMENTS FOR PURCHASING 
COALITIONS.—As provided by the Secretary in regula-
tions, a purchasing coalition shall be subject to require-
ments similar to the requirements of a group health plan 
under this chapter. 
‘‘(g) RELATION TO OTHER LAWS.—
‘‘(1) 
PREEMPTION
OF
STATE
FICTITIOUS 
GROUP LAWS.—Requirements (commonly referred to
as fictitious group laws) relating to grouping and 
similar requirements for health insurance coverage 
are preempted to the extent such requirements im-
pede the establishment and operation of qualified 
health benefit purchasing coalitions. 
‘‘(2) ALLOWING
SAVINGS
TO
BE
PASSED 
THROUGH.—Any State law that prohibits health in-
surance issuers from reducing premiums on health 
insurance coverage sold through a qualified health 
benefit purchasing coalition to reflect administrative 
savings is preempted. This paragraph shall not be 
construed to preempt State laws that impose restric-
tions on premiums based on health status, claims 
history, industry, age, gender, or other underwriting 
factors. 
‘‘(3) NO WAIVER OF HIPAA REQUIREMENTS.—
Nothing in this section shall be construed to change 
the obligation of health insurance issuers to comply 
with the requirements of title XXVII of the Public 
Health Service Act with respect to health insurance 
coverage offered to small employers in the small 
group market through a qualified health benefit pur-
chasing coalition. 
‘‘(h) DEFINITION OF SMALL EMPLOYER.—For pur-
poses of this section—
‘‘(1) IN GENERAL.—The term ‘small employer’ 
means, with respect to any calendar year, any em-
ployer if such employer employed an average of at 
least 2 and not more than 50 qualified employees on 
business days during either of the 2 preceding cal-
endar years. For purposes of the preceding sentence, 
a preceding calendar year may be taken into account 
only if the employer was in existence throughout 
such year. 
‘‘(2) EMPLOYERS NOT IN EXISTENCE IN PRE-
CEDING YEAR.—In the case of an employer which 
was not in existence throughout the 1st preceding 
calendar year, the determination under paragraph 
(1) shall be based on the average number of quali-
fied employees that it is reasonably expected such 
employer will employ on business days in the current 
calendar year.’’. 
(2) CONFORMING AMENDMENT.—The table of 
subchapters for chapter 100 of such Code is amend-
ed by adding at the end the following item:
‘‘SUBCHAPTER D. QUALIFIED HEALTH BENEFIT PURCHASING COALITION’’.
(c) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to taxable years beginning after 
December 31, 2004.
SEC. 4. STATE GRANT PROGRAM FOR MARKET INNOVA-
TION. 
(a) IN GENERAL.—The Secretary of Health and 
Human Services (in this section referred to as the ‘‘Sec-
retary’’) shall establish a program (in this section referred 
to as the ‘‘program’’) to award demonstration grants 
under this section to States to allow States to demonstrate 
the effectiveness of innovative ways to increase access to 
health insurance through market reforms and other inno-
vative means. Such innovative means may include (and are 
not limited to) any of the following: 
(1) Alternative group purchasing or pooling ar-
rangements, such as a purchasing cooperatives for 
small businesses, reinsurance pools, or high risk 
pools. 
(2) Individual or small group market reforms. 
(3) Consumer education and outreach. 
(4) Subsidies to individuals, employers, or both, 
in obtaining health insurance. 
(b) SCOPE; DURATION.—The program shall be lim-
ited to not more than 10 States and to a total period of 
5 years, beginning on the date the first demonstration 
grant is made. 
(c) CONDITIONS FOR DEMONSTRATION GRANTS.—
(1) IN GENERAL.—The Secretary may not pro-
vide for a demonstration grant to a State under the
program unless the Secretary finds that under the 
proposed demonstration grant—
(A) the State will provide for demonstrated 
increase of access for some portion of the exist-
ing uninsured population through a market in-
novation (other than merely through a financial 
expansion of a program initiated before the 
date of the enactment of this Act); 
(B) the State will comply with applicable 
Federal laws; 
(C) the State will not discriminate among 
participants on the basis of any health status-
related factor (as defined in section 2791(d)(9) 
of the Public Health Service Act), except to the 
extent a State wishes to focus on populations 
that otherwise would not obtain health insur-
ance because of such factors; and 
(D) the State will provide for such evalua-
tion, in coordination with the evaluation re-
quired under subsection (d), as the Secretary 
may specify. 
(2) APPLICATION.—The Secretary shall not 
provide a demonstration grant under the program to 
a State unless—