II 
Calendar No. 539 
108TH CONGRESS 
2D SESSION 
H. R. 4279 
IN THE SENATE OF THE UNITED STATES 
MAY 17, 2004 
Received 
MAY 20, 2004 
Read the first time 
MAY 21, 2004 
Read the second time and placed on the calendar 
AN ACT 
To amend the Internal Revenue Code of 1986 to provide 
for the disposition of unused health benefits in cafeteria 
plans and flexible spending arrangements, to improve 
patient access to health care services and provide im-
proved medical care by reducing the excessive burden 
the liability system places on the health care delivery 
system, and to amend title I of the Employee Retirement 
Income Security Act of 1974 to improve access and 
choice for entrepreneurs with small businesses with re-
spect to medical care for their employees. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
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SECTION 1. TABLE OF CONTENTS. 
The table of contents for this Act is as follows: 
Sec. 1. Table of contents. 
Sec. 2. Disposition of unused health benefits in cafeteria plans and flexible 
spending arrangements. 
TITLE I—HELP EFFICIENT, ACCESSIBLE, LOW-COST, TIMELY 
HEALTHCARE (HEALTH) ACT OF 2004 
Sec. 1001. Short title. 
Sec. 1002. Findings and purpose. 
Sec. 1003. Encouraging speedy resolution of claims. 
Sec. 1004. Compensating patient injury. 
Sec. 1005. Maximizing patient recovery. 
Sec. 1006. Additional health benefits. 
Sec. 1007. Punitive damages. 
Sec. 1008. Authorization of payment of future damages to claimants in health 
care lawsuits. 
Sec. 1009. Definitions. 
Sec. 1010. Effect on other laws. 
Sec. 1011. State flexibility and protection of States’ rights. 
Sec. 1012. Applicability; effective date. 
Sec. 1013. Sense of Congress. 
TITLE II—SMALL BUSINESS HEALTH FAIRNESS ACT OF 2004 
Sec. 2001. Short title. 
Sec. 2002. Rules governing association health plans. 
Sec. 2003. Clarification of treatment of single employer arrangements. 
Sec. 2004. Enforcement provisions relating to association health plans. 
Sec. 2005. Cooperation between Federal and State authorities. 
Sec. 2006. Effective date and transitional and other rules. 
SEC. 2. DISPOSITION OF UNUSED HEALTH BENEFITS IN 
CAFETERIA PLANS AND FLEXIBLE SPENDING 
ARRANGEMENTS. 
(a) IN GENERAL.—Section 125 of the Internal Rev-
enue Code of 1986 (relating to cafeteria plans) is amended 
by redesignating subsections (h) and (i) as subsections (i) 
and (j), respectively, and by inserting after subsection (g) 
the following: 
‘‘(h) CONTRIBUTIONS OF CERTAIN UNUSED HEALTH 
BENEFITS.—
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taxes of the amounts spent to provide them 
with health insurance benefits; and 
(C) the large number of health care pro-
viders who provide items or services for which 
the Federal Government makes payments. 
(b) PURPOSE.—It is the purpose of this Act to imple-
ment reasonable, comprehensive, and effective health care 
liability reforms designed to— 
(1) improve the availability of health care serv-
ices in cases in which health care liability actions 
have been shown to be a factor in the decreased 
availability of services; 
(2) reduce the incidence of ‘‘defensive medi-
cine’’ and lower the cost of health care liability in-
surance, all of which contribute to the escalation of 
health care costs; 
(3) ensure that persons with meritorious health 
care injury claims receive fair and adequate com-
pensation, including reasonable noneconomic dam-
ages; 
(4) improve the fairness and cost-effectiveness 
of our current health care liability system to resolve 
disputes over, and provide compensation for, health 
care liability by reducing uncertainty in the amount 
of compensation provided to injured individuals; and
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(5) provide an increased sharing of information 
in the health care system which will reduce unin-
tended injury and improve patient care. 
SEC. 
1003. 
ENCOURAGING 
SPEEDY 
RESOLUTION 
OF 
CLAIMS. 
The time for the commencement of a health care law-
suit shall be 3 years after the date of manifestation of 
injury or 1 year after the claimant discovers, or through 
the use of reasonable diligence should have discovered, the 
injury, whichever occurs first. In no event shall the time 
for commencement of a health care lawsuit exceed 3 years 
after the date of manifestation of injury unless tolled for 
any of the following— 
(1) upon proof of fraud; 
(2) intentional concealment; or 
(3) the presence of a foreign body, which has no 
therapeutic or diagnostic purpose or effect, in the 
person of the injured person. 
Actions by a minor shall be commenced within 3 years 
from the date of the alleged manifestation of injury except 
that actions by a minor under the full age of 6 years shall 
be commenced within 3 years of manifestation of injury 
or prior to the minor’s 8th birthday, whichever provides 
a longer period. Such time limitation shall be tolled for 
minors for any period during which a parent or guardian
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and a health care provider or health care organization 
have committed fraud or collusion in the failure to bring 
an action on behalf of the injured minor. 
SEC. 1004. COMPENSATING PATIENT INJURY. 
(a) UNLIMITED AMOUNT OF DAMAGES FOR ACTUAL 
ECONOMIC LOSSES IN HEALTH CARE LAWSUITS.—In any 
health care lawsuit, nothing in this title shall limit a claim-
ant’s recovery of the full amount of the available economic 
damages, notwithstanding the limitation in subsection (b). 
(b) ADDITIONAL NONECONOMIC DAMAGES.—In any 
health care lawsuit, the amount of noneconomic damages, 
if available, may be as much as $250,000, regardless of 
the number of parties against whom the action is brought 
or the number of separate claims or actions brought with 
respect to the same injury. 
(c) NO DISCOUNT OF AWARD FOR NONECONOMIC 
DAMAGES.—For purposes of applying the limitation in 
subsection (b), future noneconomic damages shall not be 
discounted to present value. The jury shall not be in-
formed about the maximum award for noneconomic dam-
ages. An award for noneconomic damages in excess of 
$250,000 shall be reduced either before the entry of judg-
ment, or by amendment of the judgment after entry of 
judgment, and such reduction shall be made before ac-
counting for any other reduction in damages required by
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law. If separate awards are rendered for past and future 
noneconomic damages and the combined awards exceed 
$250,000, the future noneconomic damages shall be re-
duced first. 
(d) FAIR SHARE RULE.—In any health care lawsuit, 
each party shall be liable for that party’s several share 
of any damages only and not for the share of any other 
person. Each party shall be liable only for the amount of 
damages allocated to such party in direct proportion to 
such party’s percentage of responsibility. Whenever a 
judgment of liability is rendered as to any party, a sepa-
rate judgment shall be rendered against each such party 
for the amount allocated to such party. For purposes of 
this section, the trier of fact shall determine the propor-
tion of responsibility of each party for the claimant’s 
harm. 
SEC. 1005. MAXIMIZING PATIENT RECOVERY. 
(a) COURT SUPERVISION OF SHARE OF DAMAGES 
ACTUALLY PAID TO CLAIMANTS.—In any health care law-
suit, the court shall supervise the arrangements for pay-
ment of damages to protect against conflicts of interest 
that may have the effect of reducing the amount of dam-
ages awarded that are actually paid to claimants. In par-
ticular, in any health care lawsuit in which the attorney 
for a party claims a financial stake in the outcome by vir-
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tue of a contingent fee, the court shall have the power 
to restrict the payment of a claimant’s damage recovery 
to such attorney, and to redirect such damages to the 
claimant based upon the interests of justice and principles 
of equity. In no event shall the total of all contingent fees 
for representing all claimants in a health care lawsuit ex-
ceed the following limits: 
(1) 40 percent of the first $50,000 recovered by 
the claimant(s). 
(2) 331⁄3 percent of the next $50,000 recovered 
by the claimant(s). 
(3) 25 percent of the next $500,000 recovered 
by the claimant(s). 
(4) 15 percent of any amount by which the re-
covery by the claimant(s) is in excess of $600,000. 
(b) APPLICABILITY.—The limitations in this section 
shall apply whether the recovery is by judgment, settle-
ment, mediation, arbitration, or any other form of alter-
native dispute resolution. In a health care lawsuit involv-
ing a minor or incompetent person, a court retains the 
authority to authorize or approve a fee that is less than 
the maximum permitted under this section. The require-
ment for court supervision in the first two sentences of 
subsection (a) applies only in civil actions.
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SEC. 1006. ADDITIONAL HEALTH BENEFITS. 
In any health care lawsuit involving injury or wrong-
ful death, any party may introduce evidence of collateral 
source benefits. If a party elects to introduce such evi-
dence, any opposing party may introduce evidence of any 
amount paid or contributed or reasonably likely to be paid 
or contributed in the future by or on behalf of the oppos-
ing party to secure the right to such collateral source bene-
fits. No provider of collateral source benefits shall recover 
any amount against the claimant or receive any lien or 
credit against the claimant’s recovery or be equitably or 
legally subrogated to the right of the claimant in a health 
care lawsuit involving injury or wrongful death. This sec-
tion shall apply to any health care lawsuit that is settled 
as well as a health care lawsuit that is resolved by a fact 
finder. This section shall not apply to section 1862(b) (42 
U.S.C. 1395y(b)) or section 1902(a)(25) (42 U.S.C. 
1396a(a)(25)) of the Social Security Act. 
SEC. 1007. PUNITIVE DAMAGES. 
(a) IN GENERAL.—Punitive damages may, if other-
wise permitted by applicable State or Federal law, be 
awarded against any person in a health care lawsuit only 
if it is proven by clear and convincing evidence that such 
person acted with malicious intent to injure the claimant, 
or that such person deliberately failed to avoid unneces-
sary injury that such person knew the claimant was sub-
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(1) FACTORS
CONSIDERED.—In determining 
the amount of punitive damages, if awarded, in a 
health care lawsuit, the trier of fact shall consider 
only the following— 
(A) the severity of the harm caused by the 
conduct of such party; 
(B) the duration of the conduct or any 
concealment of it by such party; 
(C) the profitability of the conduct to such 
party; 
(D) the number of products sold or med-
ical procedures rendered for compensation, as 
the case may be, by such party, of the kind 
causing the harm complained of by the claim-
ant; 
(E) any criminal penalties imposed on such 
party, as a result of the conduct complained of 
by the claimant; and 
(F) the amount of any civil fines assessed 
against such party as a result of the conduct 
complained of by the claimant. 
(2) MAXIMUM AWARD.—The amount of punitive 
damages, if awarded, in a health care lawsuit may 
be as much as $250,000 or as much as two times 
the amount of economic damages awarded, which-
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ever is greater. The jury shall not be informed of 
this limitation. 
(c) NO PUNITIVE DAMAGES FOR PRODUCTS THAT 
COMPLY WITH FDA STANDARDS.— 
(1) IN GENERAL.— 
(A) No punitive damages may be awarded 
against the manufacturer or distributor of a 
medical product, or a supplier of any compo-
nent or raw material of such medical product, 
based on a claim that such product caused the 
claimant’s harm where— 
(i)(I) such medical product was sub-
ject to premarket approval, clearance, or li-
censure by the Food and Drug Administra-
tion with respect to the safety of the for-
mulation or performance of the aspect of 
such medical product which caused the 
claimant’s harm or the adequacy of the 
packaging or labeling of such medical 
product; and 
(II) such medical product was so ap-
proved, cleared, or licensed; or 
(ii) such medical product is generally 
recognized among qualified experts as safe 
and effective pursuant to conditions estab-
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lished by the Food and Drug Administra-
tion and applicable Food and Drug Admin-
istration regulations, including without 
limitation those related to packaging and 
labeling, unless the Food and Drug Admin-
istration has determined that such medical 
product was not manufactured or distrib-
uted in substantial compliance with appli-
cable Food and Drug Administration stat-
utes and regulations. 
(B) RULE OF CONSTRUCTION.—Subpara-
graph (A) may not be construed as establishing 
the obligation of the Food and Drug Adminis-
tration to demonstrate affirmatively that a 
manufacturer, distributor, or supplier referred 
to in such subparagraph meets any of the con-
ditions described in such subparagraph. 
(2) LIABILITY OF HEALTH CARE PROVIDERS.— 
A health care provider who prescribes, or who dis-
penses pursuant to a prescription, a medical product 
approved, licensed, or cleared by the Food and Drug 
Administration shall not be named as a party to a 
product liability lawsuit involving such product and 
shall not be liable to a claimant in a class action 
lawsuit against the manufacturer, distributor, or
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seller of such product. Nothing in this paragraph 
prevents a court from consolidating cases involving 
health care providers and cases involving products li-
ability claims against the manufacturer, distributor, 
or product seller of such medical product. 
(3) PACKAGING.—In a health care lawsuit for 
harm which is alleged to relate to the adequacy of 
the packaging or labeling of a drug which is required 
to have tamper-resistant packaging under regula-
tions of the Secretary of Health and Human Serv-
ices (including labeling regulations related to such 
packaging), the manufacturer or product seller of 
the drug shall not be held liable for punitive dam-
ages unless such packaging or labeling is found by 
the trier of fact by clear and convincing evidence to 
be substantially out of compliance with such regula-
tions. 
(4) EXCEPTION.—Paragraph (1) shall not 
apply in any health care lawsuit in which— 
(A) a person, before or after premarket ap-
proval, clearance, or licensure of such medical 
product, knowingly misrepresented to or with-
held from the Food and Drug Administration 
information that is required to be submitted 
under the Federal Food, Drug, and Cosmetic
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Act (21 U.S.C. 301 et seq.) or section 351 of 
the Public Health Service Act (42 U.S.C. 262) 
that is material and is causally related to the 
harm which the claimant allegedly suffered; or 
(B) a person made an illegal payment to 
an official of the Food and Drug Administra-
tion for the purpose of either securing or main-
taining approval, clearance, or licensure of such 
medical product. 
SEC. 1008. AUTHORIZATION OF PAYMENT OF FUTURE DAM-
AGES TO CLAIMANTS IN HEALTH CARE LAW-
SUITS. 
(a) IN GENERAL.—In any health care lawsuit, if an 
award of future damages, without reduction to present 
value, equaling or exceeding $50,000 is made against a 
party with sufficient insurance or other assets to fund a 
periodic payment of such a judgment, the court shall, at 
the request of any party, enter a judgment ordering that 
the future damages be paid by periodic payments. In any 
health care lawsuit, the court may be guided by the Uni-
form Periodic Payment of Judgments Act promulgated by 
the National Conference of Commissioners on Uniform 
State Laws.
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(b) APPLICABILITY.—This section applies to all ac-
tions that have not been first set for trial or retrial before 
the effective date of this title. 
SEC. 1009. DEFINITIONS. 
In this title: 
(1) ALTERNATIVE DISPUTE RESOLUTION SYS-
TEM; ADR.—The term ‘‘alternative dispute resolution 
system’’ or ‘‘ADR’’ means a system that provides 
for the resolution of health care lawsuits in a man-
ner other than through a civil action brought in a 
State or Federal court. 
(2) CLAIMANT.—The term ‘‘claimant’’ means 
any person who brings a health care lawsuit, includ-
ing a person who asserts or claims a right to legal 
or equitable contribution, indemnity or subrogation, 
arising out of a health care liability claim or action, 
and any person on whose behalf such a claim is as-
serted or such an action is brought, whether de-
ceased, incompetent, or a minor. 
(3) COLLATERAL
SOURCE
BENEFITS.—The 
term ‘‘collateral source benefits’’ means any amount 
paid or reasonably likely to be paid in the future to 
or on behalf of the claimant, or any service, product 
or other benefit provided or reasonably likely to be 
provided in the future to or on behalf of the claim-
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ant, as a result of the injury or wrongful death, pur-
suant to— 
(A) any State or Federal health, sickness, 
income-disability, accident, or workers’ com-
pensation law; 
(B) any health, sickness, income-disability, 
or accident insurance that provides health bene-
fits or income-disability coverage; 
(C) any contract or agreement of any 
group, organization, partnership, or corporation 
to provide, pay for, or reimburse the cost of 
medical, hospital, dental, or income disability 
benefits; and 
(D) any other publicly or privately funded 
program. 
(4) 
COMPENSATORY
DAMAGES.—The 
term 
‘‘compensatory 
damages’’ 
means 
objectively 
verifiable monetary losses incurred as a result of the 
provision of, use of, or payment for (or failure to 
provide, use, or pay for) health care services or med-
ical products, such as past and future medical ex-
penses, loss of past and future earnings, cost of ob-
taining domestic services, loss of employment, and 
loss of business or employment opportunities, dam-
ages for physical and emotional pain, suffering, in-
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convenience, physical impairment, mental anguish, 
disfigurement, loss of enjoyment of life, loss of soci-
ety and companionship, loss of consortium (other 
than loss of domestic service), hedonic damages, in-
jury to reputation, and all other nonpecuniary losses 
of any kind or nature. The term ‘‘compensatory 
damages’’ includes economic damages and non-
economic damages, as such terms are defined in this 
section. 
(5) CONTINGENT FEE.—The term ‘‘contingent 
fee’’ includes all compensation to any person or per-
sons which is payable only if a recovery is effected 
on behalf of one or more claimants. 
(6) ECONOMIC DAMAGES.—The term ‘‘economic 
damages’’ means objectively verifiable monetary 
losses incurred as a result of the provision of, use 
of, or payment for (or failure to provide, use, or pay 
for) health care services or medical products, such as 
past and future medical expenses, loss of past and 
future earnings, cost of obtaining domestic services, 
loss of employment, and loss of business or employ-
ment opportunities. 
(7) 
HEALTH
CARE
LAWSUIT.—The 
term 
‘‘health care lawsuit’’ means any health care liability 
claim concerning the provision of health care goods
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or services or any medical product affecting inter-
state commerce, or any health care liability action 
concerning the provision of health care goods or 
services or any medical product affecting interstate 
commerce, brought in a State or Federal court or 
pursuant to an alternative dispute resolution system, 
against a health care provider, a health care organi-
zation, or the manufacturer, distributor, supplier, 
marketer, promoter, or seller of a medical product, 
regardless of the theory of liability on which the 
claim is based, or the number of claimants, plain-
tiffs, defendants, or other parties, or the number of 
claims or causes of action, in which the claimant al-
leges a health care liability claim. Such term does 
not include a claim or action which is based on 
criminal liability; which seeks civil fines or penalties 
paid to Federal, State, or local government; or which 
is grounded in antitrust. 
(8) HEALTH
CARE
LIABILITY
ACTION.—The 
term ‘‘health care liability action’’ means a civil ac-
tion brought in a State or Federal Court or pursu-
ant to an alternative dispute resolution system, 
against a health care provider, a health care organi-
zation, or the manufacturer, distributor, supplier, 
marketer, promoter, or seller of a medical product,
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regardless of the theory of liability on which the 
claim is based, or the number of plaintiffs, defend-
ants, or other parties, or the number of causes of ac-
tion, in which the claimant alleges a health care li-
ability claim. 
(9) HEALTH
CARE
LIABILITY
CLAIM.—The 
term ‘‘health care liability claim’’ means a demand 
by any person, whether or not pursuant to ADR, 
against a health care provider, health care organiza-
tion, or the manufacturer, distributor, supplier, mar-
keter, promoter, or seller of a medical product, in-
cluding, but not limited to, third-party claims, cross- 
claims, counter-claims, or contribution claims, which 
are based upon the provision of, use of, or payment 
for (or the failure to provide, use, or pay for) health 
care services or medical products, regardless of the 
theory of liability on which the claim is based, or the 
number of plaintiffs, defendants, or other parties, or 
the number of causes of action. 
(10) HEALTH CARE ORGANIZATION.—The term 
‘‘health care organization’’ means any person or en-
tity which is obligated to provide or pay for health 
benefits under any health plan, including any person 
or entity acting under a contract or arrangement
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with a health care organization to provide or admin-
ister any health benefit. 
(11) HEALTH
CARE
PROVIDER.—The term 
‘‘health care provider’’ means any person or entity 
required by State or Federal laws or regulations to 
be licensed, registered, or certified to provide health 
care services, and being either so licensed, reg-
istered, or certified, or exempted from such require-
ment by other statute or regulation. 
(12) HEALTH CARE GOODS OR SERVICES.—The 
term ‘‘health care goods or services’’ means any 
goods or services provided by a health care organiza-
tion, provider, or by any individual working under 
the supervision of a health care provider, that relates 
to the diagnosis, prevention, or treatment of any 
human disease or impairment, or the assessment or 
care of the health of human beings. 
(13) MALICIOUS
INTENT
TO
INJURE.—The 
term ‘‘malicious intent to injure’’ means inten-
tionally causing or attempting to cause physical in-
jury other than providing health care goods or serv-
ices. 
(14) MEDICAL PRODUCT.—The term ‘‘medical 
product’’ means a drug, device, or biological product 
intended for humans, and the terms ‘‘drug’’, ‘‘de-
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vice’’, and ‘‘biological product’’ have the meanings 
given such terms in sections 201(g)(1) and 201(h) 
of the Federal Food, Drug and Cosmetic Act (21 
U.S.C. 321) and section 351(a) of the Public Health 
Service Act (42 U.S.C. 262(a)), respectively, includ-
ing any component or raw material used therein, but 
excluding health care services. 
(15) 
NONECONOMIC
DAMAGES.—The 
term 
‘‘noneconomic damages’’ means damages for phys-
ical and emotional pain, suffering, inconvenience, 
physical impairment, mental anguish, disfigurement, 
loss of enjoyment of life, loss of society and compan-
ionship, loss of consortium (other than loss of do-
mestic service), hedonic damages, injury to reputa-
tion, and all other nonpecuniary losses of any kind 
or nature. 
(16) PUNITIVE DAMAGES.—The term ‘‘punitive 
damages’’ means damages awarded, for the purpose 
of punishment or deterrence, and not solely for com-
pensatory purposes, against a health care provider, 
health care organization, or a manufacturer, dis-
tributor, or supplier of a medical product. Punitive 
damages are neither economic nor noneconomic 
damages.
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(17) RECOVERY.—The term ‘‘recovery’’ means 
the net sum recovered after deducting any disburse-
ments or costs incurred in connection with prosecu-
tion or settlement of the claim, including all costs 
paid or advanced by any person. Costs of health care 
incurred by the plaintiff and the attorneys’ office 
overhead costs or charges for legal services are not 
deductible disbursements or costs for such purpose. 
(18) STATE.—The term ‘‘State’’ means each of 
the several States, the District of Columbia, the 
Commonwealth of Puerto Rico, the Virgin Islands, 
Guam, American Samoa, the Northern Mariana Is-
lands, the Trust Territory of the Pacific Islands, and 
any other territory or possession of the United 
States, or any political subdivision thereof. 
SEC. 1010. EFFECT ON OTHER LAWS. 
(a) VACCINE INJURY.— 
(1) To the extent that title XXI of the Public 
Health Service Act establishes a Federal rule of law 
applicable to a civil action brought for a vaccine-re-
lated injury or death— 
(A) this title does not affect the application 
of the rule of law to such an action; and
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(B) any rule of law prescribed by this title 
in conflict with a rule of law of such title XXI 
shall not apply to such action. 
(2) If there is an aspect of a civil action 
brought for a vaccine-related injury or death to 
which a Federal rule of law under title XXI of the 
Public Health Service Act does not apply, then this 
title or otherwise applicable law (as determined 
under this title) will apply to such aspect of such ac-
tion. 
(b) OTHER FEDERAL LAW.—Except as provided in 
this section, nothing in this title shall be deemed to affect 
any defense available to a defendant in a health care law-
suit or action under any other provision of Federal law. 
SEC. 1011. STATE FLEXIBILITY AND PROTECTION OF 
STATES’ RIGHTS. 
(a) HEALTH CARE LAWSUITS.—The provisions gov-
erning health care lawsuits set forth in this title preempt, 
subject to subsections (b) and (c), State law to the extent 
that State law prevents the application of any provisions 
of law established by or under this title. The provisions 
governing health care lawsuits set forth in this title super-
sede chapter 171 of title 28, United States Code, to the 
extent that such chapter—
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(1) provides for a greater amount of damages 
or contingent fees, a longer period in which a health 
care lawsuit may be commenced, or a reduced appli-
cability or scope of periodic payment of future dam-
ages, than provided in this title; or 
(2) prohibits the introduction of evidence re-
garding collateral source benefits, or mandates or 
permits subrogation or a lien on collateral source 
benefits. 
(b) PROTECTION OF STATES’ RIGHTS AND OTHER 
LAWS.—(1) Any issue that is not governed by any provi-
sion of law established by or under this title (including 
State standards of negligence) shall be governed by other-
wise applicable State or Federal law. 
(2) This title shall not preempt or supersede any 
State or Federal law that imposes greater procedural or 
substantive protections for health care providers and 
health care organizations from liability, loss, or damages 
than those provided by this title or create a cause of ac-
tion. 
(c) STATE FLEXIBILITY.—No provision of this title 
shall be construed to preempt— 
(1) any State law (whether effective before, on, 
or after the date of the enactment of this title) that 
specifies a particular monetary amount of compen-
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satory or punitive damages (or the total amount of 
damages) that may be awarded in a health care law-
suit, regardless of whether such monetary amount is 
greater or lesser than is provided for under this title, 
notwithstanding section 4(a); or 
(2) any defense available to a party in a health 
care lawsuit under any other provision of State or 
Federal law. 
SEC. 1012. APPLICABILITY; EFFECTIVE DATE. 
This title shall apply to any health care lawsuit 
brought in a Federal or State court, or subject to an alter-
native dispute resolution system, that is initiated on or 
after the date of the enactment of this title, except that 
any health care lawsuit arising from an injury occurring 
prior to the date of the enactment of this title shall be 
governed by the applicable statute of limitations provisions 
in effect at the time the injury occurred. 
SEC. 1013. SENSE OF CONGRESS. 
It is the sense of Congress that a health insurer 
should be liable for damages for harm caused when it 
makes a decision as to what care is medically necessary 
and appropriate.
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TITLE II—SMALL BUSINESS 
HEALTH FAIRNESS ACT OF 2004 
SEC. 2001. SHORT TITLE. 
This title may be cited as the ‘‘Small Business Health 
Fairness Act of 2004’’. 
SEC. 2002. RULES GOVERNING ASSOCIATION HEALTH 
PLANS. 
(a) IN GENERAL.—Subtitle B of title I of the Em-
ployee Retirement Income Security Act of 1974 is amend-
ed by adding after part 7 the following new part: 
‘‘PART 8—RULES GOVERNING ASSOCIATION 
HEALTH PLANS 
‘‘SEC. 801. ASSOCIATION HEALTH PLANS. 
‘‘(a) IN GENERAL.—For purposes of this part, the 
term ‘association health plan’ means a group health plan 
whose sponsor is (or is deemed under this part to be) de-
scribed in subsection (b). 
‘‘(b) SPONSORSHIP.—The sponsor of a group health 
plan is described in this subsection if such sponsor— 
‘‘(1) is organized and maintained in good faith, 
with a constitution and bylaws specifically stating its 
purpose and providing for periodic meetings on at 
least an annual basis, as a bona fide trade associa-
tion, a bona fide industry association (including a 
rural electric cooperative association or a rural tele-
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phone cooperative association), a bona fide profes-
sional association, or a bona fide chamber of com-
merce (or similar bona fide business association, in-
cluding a corporation or similar organization that 
operates on a cooperative basis (within the meaning 
of section 1381 of the Internal Revenue Code of 
1986)), for substantial purposes other than that of 
obtaining or providing medical care; 
‘‘(2) is established as a permanent entity which 
receives the active support of its members and re-
quires for membership payment on a periodic basis 
of dues or payments necessary to maintain eligibility 
for membership in the sponsor; and 
‘‘(3) does not condition membership, such dues 
or payments, or coverage under the plan on the 
basis of health status-related factors with respect to 
the employees of its members (or affiliated mem-
bers), or the dependents of such employees, and does 
not condition such dues or payments on the basis of 
group health plan participation. 
Any sponsor consisting of an association of entities which 
meet the requirements of paragraphs (1), (2), and (3) 
shall be deemed to be a sponsor described in this sub-
section.
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‘‘(e) CLASS CERTIFICATION FOR FULLY INSURED 
PLANS.—The applicable authority shall establish a class 
certification procedure for association health plans under 
which all benefits consist of health insurance coverage. 
Under such procedure, the applicable authority shall pro-
vide for the granting of certification under this part to 
the plans in each class of such association health plans 
upon appropriate filing under such procedure in connec-
tion with plans in such class and payment of the pre-
scribed fee under section 807(a). 
‘‘(f) CERTIFICATION OF SELF-INSURED ASSOCIATION 
HEALTH PLANS.—An association health plan which offers 
one or more benefit options which do not consist of health 
insurance coverage may be certified under this part only 
if such plan consists of any of the following: 
‘‘(1) a plan which offered such coverage on the 
date of the enactment of the Small Business Health 
Fairness Act of 2004, 
‘‘(2) a plan under which the sponsor does not 
restrict membership to one or more trades and busi-
nesses or industries and whose eligible participating 
employers represent a broad cross-section of trades 
and businesses or industries, or 
‘‘(3) a plan whose eligible participating employ-
ers represent one or more trades or businesses, or
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one or more industries, consisting of any of the fol-
lowing: agriculture; equipment and automobile deal-
erships; barbering and cosmetology; certified public 
accounting practices; child care; construction; dance, 
theatrical and orchestra productions; disinfecting 
and 
pest 
control; 
financial 
services; 
fishing; 
foodservice establishments; hospitals; labor organiza-
tions; logging; manufacturing (metals); mining; med-
ical and dental practices; medical laboratories; pro-
fessional consulting services; sanitary services; trans-
portation (local and freight); warehousing; whole-
saling/distributing; or any other trade or business or 
industry which has been indicated as having average 
or above-average risk or health claims experience by 
reason of State rate filings, denials of coverage, pro-
posed premium rate levels, or other means dem-
onstrated by such plan in accordance with regula-
tions. 
‘‘SEC. 803. REQUIREMENTS RELATING TO SPONSORS AND 
BOARDS OF TRUSTEES. 
‘‘(a) SPONSOR.—The requirements of this subsection 
are met with respect to an association health plan if the 
sponsor has met (or is deemed under this part to have 
met) the requirements of section 801(b) for a continuous
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period of not less than 3 years ending with the date of 
the application for certification under this part. 
‘‘(b) BOARD OF TRUSTEES.—The requirements of 
this subsection are met with respect to an association 
health plan if the following requirements are met: 
‘‘(1) FISCAL CONTROL.—The plan is operated, 
pursuant to a trust agreement, by a board of trust-
ees which has complete fiscal control over the plan 
and which is responsible for all operations of the 
plan. 
‘‘(2) RULES
OF
OPERATION
AND
FINANCIAL 
CONTROLS.—The board of trustees has in effect 
rules of operation and financial controls, based on a 
3-year plan of operation, adequate to carry out the 
terms of the plan and to meet all requirements of 
this title applicable to the plan. 
‘‘(3) RULES
GOVERNING
RELATIONSHIP
TO 
PARTICIPATING
EMPLOYERS
AND
TO
CONTRAC-
TORS.— 
‘‘(A) BOARD MEMBERSHIP.— 
‘‘(i) IN
GENERAL.—Except as pro-
vided in clauses (ii) and (iii), the members 
of the board of trustees are individuals se-
lected from individuals who are the owners, 
officers, directors, or employees of the par-
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ticipating employers or who are partners in 
the participating employers and actively 
participate in the business. 
‘‘(ii) LIMITATION.— 
‘‘(I) GENERAL RULE.—Except as 
provided in subclauses (II) and (III), 
no such member is an owner, officer, 
director, or employee of, or partner in, 
a contract administrator or other 
service provider to the plan. 
‘‘(II) LIMITED
EXCEPTION
FOR 
PROVIDERS OF SERVICES SOLELY ON 
BEHALF OF THE SPONSOR.—Officers 
or employees of a sponsor which is a 
service provider (other than a contract 
administrator) to the plan may be 
members of the board if they con-
stitute not more than 25 percent of 
the membership of the board and they 
do not provide services to the plan 
other than on behalf of the sponsor. 
‘‘(III) 
TREATMENT
OF
PRO-
VIDERS
OF
MEDICAL
CARE.—In the 
case of a sponsor which is an associa-
tion whose membership consists pri-
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marily of providers of medical care, 
subclause (I) shall not apply in the 
case of any service provider described 
in subclause (I) who is a provider of 
medical care under the plan. 
‘‘(iii) CERTAIN
PLANS
EXCLUDED.— 
Clause (i) shall not apply to an association 
health plan which is in existence on the 
date of the enactment of the Small Busi-
ness Health Fairness Act of 2004. 
‘‘(B) SOLE
AUTHORITY.—The board has 
sole authority under the plan to approve appli-
cations for participation in the plan and to con-
tract with a service provider to administer the 
day-to-day affairs of the plan. 
‘‘(c) TREATMENT OF FRANCHISE NETWORKS.—In 
the case of a group health plan which is established and 
maintained by a franchiser for a franchise network con-
sisting of its franchisees— 
‘‘(1) the requirements of subsection (a) and sec-
tion 801(a) shall be deemed met if such require-
ments would otherwise be met if the franchiser were 
deemed to be the sponsor referred to in section 
801(b), such network were deemed to be an associa-
tion described in section 801(b), and each franchisee
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were deemed to be a member (of the association and 
the sponsor) referred to in section 801(b); and 
‘‘(2) the requirements of section 804(a)(1) shall 
be deemed met. 
The Secretary may by regulation define for purposes of 
this subsection the terms ‘franchiser’, ‘franchise network’, 
and ‘franchisee’. 
‘‘SEC. 804. PARTICIPATION AND COVERAGE REQUIRE-
MENTS. 
‘‘(a) COVERED EMPLOYERS AND INDIVIDUALS.—The 
requirements of this subsection are met with respect to 
an association health plan if, under the terms of the 
plan— 
‘‘(1) each participating employer must be— 
‘‘(A) a member of the sponsor, 
‘‘(B) the sponsor, or 
‘‘(C) an affiliated member of the sponsor 
with respect to which the requirements of sub-
section (b) are met, 
except that, in the case of a sponsor which is a pro-
fessional association or other individual-based asso-
ciation, if at least one of the officers, directors, or 
employees of an employer, or at least one of the in-
dividuals who are partners in an employer and who 
actively participates in the business, is a member or
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such an affiliated member of the sponsor, partici-
pating employers may also include such employer; 
and 
‘‘(2) all individuals commencing coverage under 
the plan after certification under this part must 
be— 
‘‘(A) active or retired owners (including 
self-employed individuals), officers, directors, or 
employees of, or partners in, participating em-
ployers; or 
‘‘(B) the beneficiaries of individuals de-
scribed in subparagraph (A). 
‘‘(b) COVERAGE OF PREVIOUSLY UNINSURED EM-
PLOYEES.—In the case of an association health plan in 
existence on the date of the enactment of the Small Busi-
ness Health Fairness Act of 2004, an affiliated member 
of the sponsor of the plan may be offered coverage under 
the plan as a participating employer only if— 
‘‘(1) the affiliated member was an affiliated 
member on the date of certification under this part; 
or 
‘‘(2) during the 12-month period preceding the 
date of the offering of such coverage, the affiliated 
member has not maintained or contributed to a 
group health plan with respect to any of its employ-
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ees who would otherwise be eligible to participate in 
such association health plan. 
‘‘(c) INDIVIDUAL MARKET UNAFFECTED.—The re-
quirements of this subsection are met with respect to an 
association health plan if, under the terms of the plan, 
no participating employer may provide health insurance 
coverage in the individual market for any employee not 
covered under the plan which is similar to the coverage 
contemporaneously provided to employees of the employer 
under the plan, if such exclusion of the employee from cov-
erage under the plan is based on a health status-related 
factor with respect to the employee and such employee 
would, but for such exclusion on such basis, be eligible 
for coverage under the plan. 
‘‘(d) PROHIBITION
OF DISCRIMINATION AGAINST 
EMPLOYERS
AND EMPLOYEES ELIGIBLE
TO PARTICI-
PATE.—The requirements of this subsection are met with 
respect to an association health plan if— 
‘‘(1) under the terms of the plan, all employers 
meeting the preceding requirements of this section 
are eligible to qualify as participating employers for 
all geographically available coverage options, unless, 
in the case of any such employer, participation or 
contribution requirements of the type referred to in
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section 2711 of the Public Health Service Act are 
not met; 
‘‘(2) upon request, any employer eligible to par-
ticipate is furnished information regarding all cov-
erage options available under the plan; and 
‘‘(3) the applicable requirements of sections 
701, 702, and 703 are met with respect to the plan. 
‘‘SEC. 805. OTHER REQUIREMENTS RELATING TO PLAN 
DOCUMENTS, CONTRIBUTION RATES, AND 
BENEFIT OPTIONS. 
‘‘(a) IN GENERAL.—The requirements of this section 
are met with respect to an association health plan if the 
following requirements are met: 
‘‘(1) 
CONTENTS
OF
GOVERNING
INSTRU-
MENTS.—The instruments governing the plan in-
clude a written instrument, meeting the require-
ments of an instrument required under section 
402(a)(1), which— 
‘‘(A) provides that the board of trustees 
serves as the named fiduciary required for plans 
under section 402(a)(1) and serves in the ca-
pacity of a plan administrator (referred to in 
section 3(16)(A));
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‘‘(B) provides that the sponsor of the plan 
is to serve as plan sponsor (referred to in sec-
tion 3(16)(B)); and 
‘‘(C) incorporates the requirements of sec-
tion 806. 
‘‘(2) CONTRIBUTION
RATES
MUST
BE
NON-
DISCRIMINATORY.— 
‘‘(A) The contribution rates for any par-
ticipating small employer do not vary on the 
basis of any health status-related factor in rela-
tion to employees of such employer or their 
beneficiaries and do not vary on the basis of the 
type of business or industry in which such em-
ployer is engaged. 
‘‘(B) Nothing in this title or any other pro-
vision of law shall be construed to preclude an 
association health plan, or a health insurance 
issuer offering health insurance coverage in 
connection with an association health plan, 
from— 
‘‘(i) setting contribution rates based 
on the claims experience of the plan; or 
‘‘(ii) varying contribution rates for 
small employers in a State to the extent 
that such rates could vary using the same
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methodology employed in such State for 
regulating premium rates in the small 
group market with respect to health insur-
ance coverage offered in connection with 
bona fide associations (within the meaning 
of section 2791(d)(3) of the Public Health 
Service Act), 
subject to the requirements of section 702(b) 
relating to contribution rates. 
‘‘(3) FLOOR FOR NUMBER OF COVERED INDI-
VIDUALS
WITH
RESPECT
TO
CERTAIN
PLANS.—If 
any benefit option under the plan does not consist 
of health insurance coverage, the plan has as of the 
beginning of the plan year not fewer than 1,000 par-
ticipants and beneficiaries. 
‘‘(4) MARKETING REQUIREMENTS.— 
‘‘(A) IN
GENERAL.—If a benefit option 
which consists of health insurance coverage is 
offered under the plan, State-licensed insurance 
agents shall be used to distribute to small em-
ployers coverage which does not consist of 
health insurance coverage in a manner com-
parable to the manner in which such agents are 
used to distribute health insurance coverage.
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‘‘(B) 
STATE-LICENSED
INSURANCE 
AGENTS.—For purposes of subparagraph (A), 
the term ‘State-licensed insurance agents’ 
means one or more agents who are licensed in 
a State and are subject to the laws of such 
State relating to licensure, qualification, test-
ing, examination, and continuing education of 
persons authorized to offer, sell, or solicit 
health insurance coverage in such State. 
‘‘(5) 
REGULATORY
REQUIREMENTS.—Such 
other requirements as the applicable authority deter-
mines are necessary to carry out the purposes of this 
part, which shall be prescribed by the applicable au-
thority by regulation. 
‘‘(b) ABILITY OF ASSOCIATION HEALTH PLANS TO 
DESIGN BENEFIT OPTIONS.—Subject to section 514(d), 
nothing in this part or any provision of State law (as de-
fined in section 514(c)(1)) shall be construed to preclude 
an association health plan, or a health insurance issuer 
offering health insurance coverage in connection with an 
association health plan, from exercising its sole discretion 
in selecting the specific items and services consisting of 
medical care to be included as benefits under such plan 
or coverage, except (subject to section 514) in the case 
of (1) any law to the extent that it is not preempted under
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section 731(a)(1) with respect to matters governed by sec-
tion 711, 712, or 713, or (2) any law of the State with 
which filing and approval of a policy type offered by the 
plan was initially obtained to the extent that such law pro-
hibits an exclusion of a specific disease from such cov-
erage. 
‘‘SEC. 806. MAINTENANCE OF RESERVES AND PROVISIONS 
FOR 
SOLVENCY 
FOR 
PLANS 
PROVIDING 
HEALTH BENEFITS IN ADDITION TO HEALTH 
INSURANCE COVERAGE. 
‘‘(a) IN GENERAL.—The requirements of this section 
are met with respect to an association health plan if— 
‘‘(1) the benefits under the plan consist solely 
of health insurance coverage; or 
‘‘(2) if the plan provides any additional benefit 
options which do not consist of health insurance cov-
erage, the plan— 
‘‘(A) establishes and maintains reserves 
with respect to such additional benefit options, 
in amounts recommended by the qualified actu-
ary, consisting of— 
‘‘(i) a reserve sufficient for unearned 
contributions; 
‘‘(ii) a reserve sufficient for benefit li-
abilities which have been incurred, which
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have not been satisfied, and for which risk 
of loss has not yet been transferred, and 
for expected administrative costs with re-
spect to such benefit liabilities; 
‘‘(iii) a reserve sufficient for any other 
obligations of the plan; and 
‘‘(iv) a reserve sufficient for a margin 
of error and other fluctuations, taking into 
account the specific circumstances of the 
plan; and 
‘‘(B) establishes and maintains aggregate 
and specific excess /stop loss insurance and sol-
vency indemnification, with respect to such ad-
ditional benefit options for which risk of loss 
has not yet been transferred, as follows: 
‘‘(i) The plan shall secure aggregate 
excess /stop loss insurance for the plan 
with an attachment point which is not 
greater than 125 percent of expected gross 
annual claims. The applicable authority 
may by regulation provide for upward ad-
justments in the amount of such percent-
age in specified circumstances in which the 
plan specifically provides for and maintains
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reserves in excess of the amounts required 
under subparagraph (A). 
‘‘(ii) The plan shall secure specific ex-
cess /stop loss insurance for the plan with 
an attachment point which is at least equal 
to an amount recommended by the plan’s 
qualified actuary. The applicable authority 
may by regulation provide for adjustments 
in the amount of such insurance in speci-
fied circumstances in which the plan spe-
cifically provides for and maintains re-
serves in excess of the amounts required 
under subparagraph (A). 
‘‘(iii) The plan shall secure indem-
nification insurance for any claims which 
the plan is unable to satisfy by reason of 
a plan termination. 
Any person issuing to a plan insurance described in clause 
(i), (ii), or (iii) of subparagraph (B) shall notify the Sec-
retary of any failure of premium payment meriting can-
cellation of the policy prior to undertaking such a cancella-
tion. Any regulations prescribed by the applicable author-
ity pursuant to clause (i) or (ii) of subparagraph (B) may 
allow for such adjustments in the required levels of excess 
/stop loss insurance as the qualified actuary may rec-
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ommend, taking into account the specific circumstances 
of the plan. 
‘‘(b) MINIMUM SURPLUS IN ADDITION TO CLAIMS 
RESERVES.—In the case of any association health plan de-
scribed in subsection (a)(2), the requirements of this sub-
section are met if the plan establishes and maintains sur-
plus in an amount at least equal to— 
‘‘(1) $500,000, or 
‘‘(2) such greater amount (but not greater than 
$2,000,000) as may be set forth in regulations pre-
scribed by the applicable authority, considering the 
level of aggregate and specific excess /stop loss in-
surance provided with respect to such plan and other 
factors related to solvency risk, such as the plan’s 
projected levels of participation or claims, the nature 
of the plan’s liabilities, and the types of assets avail-
able to assure that such liabilities are met. 
‘‘(c) ADDITIONAL REQUIREMENTS.—In the case of 
any association health plan described in subsection (a)(2), 
the applicable authority may provide such additional re-
quirements relating to reserves, excess /stop loss insur-
ance, and indemnification insurance as the applicable au-
thority considers appropriate. Such requirements may be 
provided by regulation with respect to any such plan or 
any class of such plans.
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‘‘(d) ADJUSTMENTS FOR EXCESS /STOP LOSS INSUR-
ANCE.—The applicable authority may provide for adjust-
ments to the levels of reserves otherwise required under 
subsections (a) and (b) with respect to any plan or class 
of plans to take into account excess /stop loss insurance 
provided with respect to such plan or plans. 
‘‘(e) ALTERNATIVE MEANS OF COMPLIANCE.—The 
applicable authority may permit an association health plan 
described in subsection (a)(2) to substitute, for all or part 
of the requirements of this section (except subsection 
(a)(2)(B)(iii)), such security, guarantee, hold-harmless ar-
rangement, or other financial arrangement as the applica-
ble authority determines to be adequate to enable the plan 
to fully meet all its financial obligations on a timely basis 
and is otherwise no less protective of the interests of par-
ticipants and beneficiaries than the requirements for 
which it is substituted. The applicable authority may take 
into account, for purposes of this subsection, evidence pro-
vided by the plan or sponsor which demonstrates an as-
sumption of liability with respect to the plan. Such evi-
dence may be in the form of a contract of indemnification, 
lien, bonding, insurance, letter of credit, recourse under 
applicable terms of the plan in the form of assessments 
of participating employers, security, or other financial ar-
rangement.
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‘‘(f) MEASURES TO ENSURE CONTINUED PAYMENT 
OF BENEFITS BY CERTAIN PLANS IN DISTRESS.— 
‘‘(1) PAYMENTS BY CERTAIN PLANS TO ASSO-
CIATION HEALTH PLAN FUND.— 
‘‘(A) IN GENERAL.—In the case of an as-
sociation health plan described in subsection 
(a)(2), the requirements of this subsection are 
met if the plan makes payments into the Asso-
ciation Health Plan Fund under this subpara-
graph when they are due. Such payments shall 
consist of annual payments in the amount of 
$5,000, and, in addition to such annual pay-
ments, such supplemental payments as the Sec-
retary may determine to be necessary under 
paragraph (2). Payments under this paragraph 
are payable to the Fund at the time determined 
by the Secretary. Initial payments are due in 
advance of certification under this part. Pay-
ments shall continue to accrue until a plan’s as-
sets are distributed pursuant to a termination 
procedure. 
‘‘(B) PENALTIES FOR FAILURE TO MAKE 
PAYMENTS.—If any payment is not made by a 
plan when it is due, a late payment charge of 
not more than 100 percent of the payment
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which was not timely paid shall be payable by 
the plan to the Fund. 
‘‘(C) CONTINUED
DUTY
OF
THE
SEC-
RETARY.—The Secretary shall not cease to 
carry out the provisions of paragraph (2) on ac-
count of the failure of a plan to pay any pay-
ment when due. 
‘‘(2) PAYMENTS BY SECRETARY TO CONTINUE 
EXCESS /STOP LOSS INSURANCE COVERAGE AND IN-
DEMNIFICATION
INSURANCE
COVERAGE
FOR
CER-
TAIN PLANS.—In any case in which the applicable 
authority determines that there is, or that there is 
reason to believe that there will be: (A) a failure to 
take necessary corrective actions under section 
809(a) with respect to an association health plan de-
scribed in subsection (a)(2); or (B) a termination of 
such a plan under section 809(b) or 810(b)(8) (and, 
if the applicable authority is not the Secretary, cer-
tifies such determination to the Secretary), the Sec-
retary shall determine the amounts necessary to 
make payments to an insurer (designated by the 
Secretary) to maintain in force excess /stop loss in-
surance coverage or indemnification insurance cov-
erage for such plan, if the Secretary determines that 
there is a reasonable expectation that, without such
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payments, claims would not be satisfied by reason of 
termination of such coverage. The Secretary shall, to 
the extent provided in advance in appropriation 
Acts, pay such amounts so determined to the insurer 
designated by the Secretary. 
‘‘(3) ASSOCIATION HEALTH PLAN FUND.— 
‘‘(A) IN GENERAL.—There is established 
on the books of the Treasury a fund to be 
known as the ‘Association Health Plan Fund’. 
The Fund shall be available for making pay-
ments pursuant to paragraph (2). The Fund 
shall be credited with payments received pursu-
ant to paragraph (1)(A), penalties received pur-
suant to paragraph (1)(B); and earnings on in-
vestments of amounts of the Fund under sub-
paragraph (B). 
‘‘(B) INVESTMENT.—Whenever the Sec-
retary determines that the moneys of the fund 
are in excess of current needs, the Secretary 
may request the investment of such amounts as 
the Secretary determines advisable by the Sec-
retary of the Treasury in obligations issued or 
guaranteed by the United States. 
‘‘(g) EXCESS /STOP LOSS INSURANCE.—For pur-
poses of this section:
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‘‘(1) AGGREGATE EXCESS /STOP LOSS INSUR-
ANCE.—The term ‘aggregate excess /stop loss insur-
ance’ means, in connection with an association 
health plan, a contract— 
‘‘(A) under which an insurer (meeting such 
minimum standards as the applicable authority 
may prescribe by regulation) provides for pay-
ment to the plan with respect to aggregate 
claims under the plan in excess of an amount 
or amounts specified in such contract; 
‘‘(B) which is guaranteed renewable; and 
‘‘(C) which allows for payment of pre-
miums by any third party on behalf of the in-
sured plan. 
‘‘(2) SPECIFIC
EXCESS
/STOP
LOSS
INSUR-
ANCE.—The term ‘specific excess /stop loss insur-
ance’ means, in connection with an association 
health plan, a contract— 
‘‘(A) under which an insurer (meeting such 
minimum standards as the applicable authority 
may prescribe by regulation) provides for pay-
ment to the plan with respect to claims under 
the plan in connection with a covered individual 
in excess of an amount or amounts specified in
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ards under part 4 and such additional requirements re-
garding liquidity as the applicable authority may prescribe 
by regulation. 
‘‘(j) SOLVENCY STANDARDS WORKING GROUP.— 
‘‘(1) IN GENERAL.—Within 90 days after the 
date of the enactment of the Small Business Health 
Fairness Act of 2004, the applicable authority shall 
establish a Solvency Standards Working Group. In 
prescribing the initial regulations under this section, 
the applicable authority shall take into account the 
recommendations of such Working Group. 
‘‘(2) MEMBERSHIP.—The Working Group shall 
consist of not more than 15 members appointed by 
the applicable authority. The applicable authority 
shall include among persons invited to membership 
on the Working Group at least one of each of the 
following: 
‘‘(A) A representative of the National As-
sociation of Insurance Commissioners. 
‘‘(B) A representative of the American 
Academy of Actuaries. 
‘‘(C) A representative of the State govern-
ments, or their interests. 
‘‘(D) A representative of existing self-in-
sured arrangements, or their interests.
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‘‘(E) A representative of associations of 
the type referred to in section 801(b)(1), or 
their interests. 
‘‘(F) A representative of multiemployer 
plans that are group health plans, or their in-
terests. 
‘‘SEC. 807. REQUIREMENTS FOR APPLICATION AND RE-
LATED REQUIREMENTS. 
‘‘(a) FILING FEE.—Under the procedure prescribed 
pursuant to section 802(a), an association health plan 
shall pay to the applicable authority at the time of filing 
an application for certification under this part a filing fee 
in the amount of $5,000, which shall be available in the 
case of the Secretary, to the extent provided in appropria-
tion Acts, for the sole purpose of administering the certifi-
cation procedures applicable with respect to association 
health plans. 
‘‘(b) INFORMATION TO BE INCLUDED IN APPLICA-
TION FOR CERTIFICATION.—An application for certifi-
cation under this part meets the requirements of this sec-
tion only if it includes, in a manner and form which shall 
be prescribed by the applicable authority by regulation, at 
least the following information: 
‘‘(1) IDENTIFYING INFORMATION.—The names 
and addresses of—
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‘‘(A) the sponsor; and 
‘‘(B) the members of the board of trustees 
of the plan. 
‘‘(2) STATES IN WHICH PLAN INTENDS TO DO 
BUSINESS.—The States in which participants and 
beneficiaries under the plan are to be located and 
the number of them expected to be located in each 
such State. 
‘‘(3) BONDING REQUIREMENTS.—Evidence pro-
vided by the board of trustees that the bonding re-
quirements of section 412 will be met as of the date 
of the application or (if later) commencement of op-
erations. 
‘‘(4) PLAN DOCUMENTS.—A copy of the docu-
ments governing the plan (including any bylaws and 
trust agreements), the summary plan description, 
and other material describing the benefits that will 
be provided to participants and beneficiaries under 
the plan. 
‘‘(5) 
AGREEMENTS
WITH
SERVICE
PRO-
VIDERS.—A copy of any agreements between the 
plan and contract administrators and other service 
providers. 
‘‘(6) FUNDING REPORT.—In the case of asso-
ciation health plans providing benefits options in ad-
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dition to health insurance coverage, a report setting 
forth information with respect to such additional 
benefit options determined as of a date within the 
120-day period ending with the date of the applica-
tion, including the following: 
‘‘(A) RESERVES.—A statement, certified 
by the board of trustees of the plan, and a 
statement of actuarial opinion, signed by a 
qualified actuary, that all applicable require-
ments of section 806 are or will be met in ac-
cordance with regulations which the applicable 
authority shall prescribe. 
‘‘(B) 
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 re-
quired reserves under the plan for the 12- 
month period beginning with such date within 
such 120-day period, taking into account the 
expected coverage and experience of the plan. If 
the contribution rates are not fully adequate, 
the statement of actuarial opinion shall indicate
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the extent to which the rates are inadequate 
and the changes needed to ensure adequacy. 
‘‘(C) CURRENT AND PROJECTED VALUE OF 
ASSETS AND LIABILITIES.—A statement of ac-
tuarial opinion signed by a qualified actuary, 
which sets forth the current value of the assets 
and liabilities accumulated under the plan and 
a projection of the assets, liabilities, income, 
and expenses of the plan for the 12-month pe-
riod referred to in subparagraph (B). The in-
come statement shall identify separately the 
plan’s administrative expenses and claims. 
‘‘(D) 
COSTS
OF
COVERAGE
TO
BE 
CHARGED
AND
OTHER
EXPENSES.—A state-
ment of the costs of coverage to be charged, in-
cluding an itemization of amounts for adminis-
tration, reserves, and other expenses associated 
with the operation of the plan. 
‘‘(E) OTHER
INFORMATION.—Any other 
information as may be determined by the appli-
cable authority, by regulation, as necessary to 
carry out the purposes of this part. 
‘‘(c) FILING
NOTICE
OF
CERTIFICATION
WITH 
STATES.—A certification granted under this part to an 
association health plan shall not be effective unless written
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notice of such certification is filed with the applicable 
State authority of each State in which at least 25 percent 
of the participants and beneficiaries under the plan are 
located. For purposes of this subsection, an individual 
shall be considered to be located in the State in which a 
known address of such individual is located or in which 
such individual is employed. 
‘‘(d) NOTICE OF MATERIAL CHANGES.—In the case 
of any association health plan certified under this part, 
descriptions of material changes in any information which 
was required to be submitted with the application for the 
certification under this part shall be filed in such form 
and manner as shall be prescribed by the applicable au-
thority by regulation. The applicable authority may re-
quire by regulation prior notice of material changes with 
respect to specified matters which might serve as the basis 
for suspension or revocation of the certification. 
‘‘(e) REPORTING REQUIREMENTS FOR CERTAIN AS-
SOCIATION HEALTH PLANS.—An association health plan 
certified under this part which provides benefit options in 
addition to health insurance coverage for such plan year 
shall meet the requirements of section 103 by filing an 
annual report under such section which shall include infor-
mation described in subsection (b)(6) with respect to the 
plan year and, notwithstanding section 104(a)(1)(A), shall
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be filed with the applicable authority not later than 90 
days after the close of the plan year (or on such later date 
as may be prescribed by the applicable authority). The ap-
plicable authority may require by regulation such interim 
reports as it considers appropriate. 
‘‘(f) ENGAGEMENT OF QUALIFIED ACTUARY.—The 
board of trustees of each association health plan which 
provides benefits options in addition to health insurance 
coverage and which is applying for certification under this 
part or is certified under this part shall engage, on behalf 
of all participants and beneficiaries, a qualified actuary 
who shall be responsible for the preparation of the mate-
rials comprising information necessary to be submitted by 
a qualified actuary under this part. The qualified actuary 
shall utilize such assumptions and techniques as are nec-
essary to enable such actuary to form an opinion as to 
whether the contents of the matters reported under this 
part— 
‘‘(1) are in the aggregate reasonably related to 
the experience of the plan and to reasonable expecta-
tions; and 
‘‘(2) represent such actuary’s best estimate of 
anticipated experience under the plan. 
The opinion by the qualified actuary shall be made with 
respect to, and shall be made a part of, the annual report.
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‘‘SEC. 808. NOTICE REQUIREMENTS FOR VOLUNTARY TER-
MINATION. 
‘‘Except as provided in section 809(b), an association 
health plan which is or has been certified under this part 
may terminate (upon or at any time after cessation of ac-
cruals in benefit liabilities) only if the board of trustees, 
not less than 60 days before the proposed termination 
date— 
‘‘(1) provides to the participants and bene-
ficiaries a written notice of intent to terminate stat-
ing that such termination is intended and the pro-
posed termination date; 
‘‘(2) develops a plan for winding up the affairs 
of the plan in connection with such termination in 
a manner which will result in timely payment of all 
benefits for which the plan is obligated; and 
‘‘(3) submits such plan in writing to the appli-
cable authority. 
Actions required under this section shall be taken in such 
form and manner as may be prescribed by the applicable 
authority by regulation. 
‘‘SEC. 809. CORRECTIVE ACTIONS AND MANDATORY TERMI-
NATION. 
‘‘(a) ACTIONS
TO
AVOID
DEPLETION
OF
RE-
SERVES.—An association health plan which is certified 
under this part and which provides benefits other than
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health insurance coverage shall continue to meet the re-
quirements of section 806, irrespective of whether such 
certification continues in effect. The board of trustees of 
such plan shall determine quarterly whether the require-
ments of section 806 are met. In any case in which the 
board determines that there is reason to believe that there 
is or will be a failure to meet such requirements, or the 
applicable authority makes such a determination and so 
notifies the board, the board shall immediately notify the 
qualified actuary engaged by the plan, and such actuary 
shall, not later than the end of the next following month, 
make such recommendations to the board for corrective 
action as the actuary determines necessary to ensure com-
pliance with section 806. Not later than 30 days after re-
ceiving from the actuary recommendations for corrective 
actions, the board shall notify the applicable authority (in 
such form and manner as the applicable authority may 
prescribe by regulation) of such recommendations of the 
actuary for corrective action, together with a description 
of the actions (if any) that the board has taken or plans 
to take in response to such recommendations. The board 
shall thereafter report to the applicable authority, in such 
form and frequency as the applicable authority may speci-
fy to the board, regarding corrective action taken by the 
board until the requirements of section 806 are met.
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‘‘(b) MANDATORY TERMINATION.—In any case in 
which— 
‘‘(1) the applicable authority has been notified 
under subsection (a) (or by an issuer of excess /stop 
loss insurance or indemnity insurance pursuant to 
section 806(a)) of a failure of an association health 
plan which is or has been certified under this part 
and is described in section 806(a)(2) to meet the re-
quirements of section 806 and has not been notified 
by the board of trustees of the plan that corrective 
action has restored compliance with such require-
ments; and 
‘‘(2) the applicable authority determines that 
there is a reasonable expectation that the plan will 
continue to fail to meet the requirements of section 
806, 
the board of trustees of the plan shall, at the direction 
of the applicable authority, terminate the plan and, in the 
course of the termination, take such actions as the appli-
cable authority may require, including satisfying any 
claims referred to in section 806(a)(2)(B)(iii) and recov-
ering for the plan any liability under subsection 
(a)(2)(B)(iii) or (e) of section 806, as necessary to ensure 
that the affairs of the plan will be, to the maximum extent
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possible, wound up in a manner which will result in timely 
provision of all benefits for which the plan is obligated. 
‘‘SEC. 810. TRUSTEESHIP BY THE SECRETARY OF INSOL-
VENT ASSOCIATION HEALTH PLANS PRO-
VIDING HEALTH BENEFITS IN ADDITION TO 
HEALTH INSURANCE COVERAGE. 
‘‘(a) APPOINTMENT OF SECRETARY AS TRUSTEE FOR 
INSOLVENT PLANS.—Whenever the Secretary determines 
that an association health plan which is or has been cer-
tified under this part and which is described in section 
806(a)(2) will be unable to provide benefits when due or 
is otherwise in a financially hazardous condition, as shall 
be defined by the Secretary by regulation, the Secretary 
shall, upon notice to the plan, apply to the appropriate 
United States district court for appointment of the Sec-
retary as trustee to administer the plan for the duration 
of the insolvency. The plan may appear as a party and 
other interested persons may intervene in the proceedings 
at the discretion of the court. The court shall appoint such 
Secretary trustee if the court determines that the trustee-
ship is necessary to protect the interests of the partici-
pants and beneficiaries or providers of medical care or to 
avoid any unreasonable deterioration of the financial con-
dition of the plan. The trusteeship of such Secretary shall 
continue until the conditions described in the first sen-
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tence of this subsection are remedied or the plan is termi-
nated. 
‘‘(b) POWERS AS TRUSTEE.—The Secretary, upon 
appointment as trustee under subsection (a), shall have 
the power— 
‘‘(1) to do any act authorized by the plan, this 
title, or other applicable provisions of law to be done 
by the plan administrator or any trustee of the plan; 
‘‘(2) to require the transfer of all (or any part) 
of the assets and records of the plan to the Sec-
retary as trustee; 
‘‘(3) to invest any assets of the plan which the 
Secretary holds in accordance with the provisions of 
the plan, regulations prescribed by the Secretary, 
and applicable provisions of law; 
‘‘(4) to require the sponsor, the plan adminis-
trator, any participating employer, and any employee 
organization representing plan participants to fur-
nish any information with respect to the plan which 
the Secretary as trustee may reasonably need in 
order to administer the plan; 
‘‘(5) to collect for the plan any amounts due the 
plan and to recover reasonable expenses of the trust-
eeship;
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‘‘(6) to commence, prosecute, or defend on be-
half of the plan any suit or proceeding involving the 
plan; 
‘‘(7) to issue, publish, or file such notices, state-
ments, and reports as may be required by the Sec-
retary by regulation or required by any order of the 
court; 
‘‘(8) to terminate the plan (or provide for its 
termination in accordance with section 809(b)) and 
liquidate the plan assets, to restore the plan to the 
responsibility of the sponsor, or to continue the 
trusteeship; 
‘‘(9) to provide for the enrollment of plan par-
ticipants and beneficiaries under appropriate cov-
erage options; and 
‘‘(10) to do such other acts as may be nec-
essary to comply with this title or any order of the 
court and to protect the interests of plan partici-
pants and beneficiaries and providers of medical 
care. 
‘‘(c) NOTICE OF APPOINTMENT.—As soon as prac-
ticable after the Secretary’s appointment as trustee, the 
Secretary shall give notice of such appointment to— 
‘‘(1) the sponsor and plan administrator; 
‘‘(2) each participant;
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‘‘(3) each participating employer; and 
‘‘(4) if applicable, each employee organization 
which, for purposes of collective bargaining, rep-
resents plan participants. 
‘‘(d) ADDITIONAL DUTIES.—Except to the extent in-
consistent with the provisions of this title, or as may be 
otherwise ordered by the court, the Secretary, upon ap-
pointment as trustee under this section, shall be subject 
to the same duties as those of a trustee under section 704 
of title 11, United States Code, and shall have the duties 
of a fiduciary for purposes of this title. 
‘‘(e) OTHER PROCEEDINGS.—An application by the 
Secretary under this subsection may be filed notwith-
standing the pendency in the same or any other court of 
any bankruptcy, mortgage foreclosure, or equity receiver-
ship proceeding, or any proceeding to reorganize, conserve, 
or liquidate such plan or its property, or any proceeding 
to enforce a lien against property of the plan. 
‘‘(f) JURISDICTION OF COURT.— 
‘‘(1) IN GENERAL.—Upon the filing of an appli-
cation for the appointment as trustee or the issuance 
of a decree under this section, the court to which the 
application is made shall have exclusive jurisdiction 
of the plan involved and its property wherever lo-
cated with the powers, to the extent consistent with
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the purposes of this section, of a court of the United 
States having jurisdiction over cases under chapter 
11 of title 11, United States Code. Pending an adju-
dication under this section such court shall stay, and 
upon appointment by it of the Secretary as trustee, 
such court shall continue the stay of, any pending 
mortgage foreclosure, equity receivership, or other 
proceeding to reorganize, conserve, or liquidate the 
plan, the sponsor, or property of such plan or spon-
sor, and any other suit against any receiver, conser-
vator, or trustee of the plan, the sponsor, or prop-
erty of the plan or sponsor. Pending such adjudica-
tion and upon the appointment by it of the Sec-
retary as trustee, the court may stay any proceeding 
to enforce a lien against property of the plan or the 
sponsor or any other suit against the plan or the 
sponsor. 
‘‘(2) VENUE.—An action under this section 
may be brought in the judicial district where the 
sponsor or the plan administrator resides or does 
business or where any asset of the plan is situated. 
A district court in which such action is brought may 
issue process with respect to such action in any 
other judicial district.
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‘‘(g) PERSONNEL.—In accordance with regulations 
which shall be prescribed by the Secretary, the Secretary 
shall appoint, retain, and compensate accountants, actu-
aries, and other professional service personnel as may be 
necessary in connection with the Secretary’s service as 
trustee under this section. 
‘‘SEC. 811. STATE ASSESSMENT AUTHORITY. 
‘‘(a) IN GENERAL.—Notwithstanding section 514, a 
State may impose by law a contribution tax on an associa-
tion health plan described in section 806(a)(2), if the plan 
commenced operations in such State after the date of the 
enactment of the Small Business Health Fairness Act of 
2004. 
‘‘(b) CONTRIBUTION TAX.—For purposes of this sec-
tion, the term ‘contribution tax’ imposed by a State on 
an association health plan means any tax imposed by such 
State if— 
‘‘(1) such tax is computed by applying a rate to 
the amount of premiums or contributions, with re-
spect to individuals covered under the plan who are 
residents of such State, which are received by the 
plan from participating employers located in such 
State or from such individuals; 
‘‘(2) the rate of such tax does not exceed the 
rate of any tax imposed by such State on premiums
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or contributions received by insurers or health main-
tenance organizations for health insurance coverage 
offered in such State in connection with a group 
health plan; 
‘‘(3) such tax is otherwise nondiscriminatory; 
and 
‘‘(4) the amount of any such tax assessed on 
the plan is reduced by the amount of any tax or as-
sessment otherwise imposed by the State on pre-
miums, contributions, or both received by insurers or 
health maintenance organizations for health insur-
ance coverage, aggregate excess /stop loss insurance 
(as defined in section 806(g)(1)), specific excess 
/stop 
loss 
insurance 
(as 
defined 
in 
section 
806(g)(2)), other insurance related to the provision 
of medical care under the plan, or any combination 
thereof provided by such insurers or health mainte-
nance organizations in such State in connection with 
such plan. 
‘‘SEC. 812. DEFINITIONS AND RULES OF CONSTRUCTION. 
‘‘(a) DEFINITIONS.—For purposes of this part— 
‘‘(1) GROUP HEALTH PLAN.—The term ‘group 
health plan’ has the meaning provided in section 
733(a)(1) (after applying subsection (b) of this sec-
tion).
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‘‘(2) MEDICAL CARE.—The term ‘medical care’ 
has the meaning provided in section 733(a)(2). 
‘‘(3) HEALTH
INSURANCE
COVERAGE.—The 
term ‘health insurance coverage’ has the meaning 
provided in section 733(b)(1). 
‘‘(4) HEALTH INSURANCE ISSUER.—The term 
‘health insurance issuer’ has the meaning provided 
in section 733(b)(2). 
‘‘(5) APPLICABLE AUTHORITY.—The term ‘ap-
plicable authority’ means the Secretary, except that, 
in connection with any exercise of the Secretary’s 
authority regarding which the Secretary is required 
under section 506(d) to consult with a State, such 
term means the Secretary, in consultation with such 
State. 
‘‘(6) HEALTH STATUS-RELATED FACTOR.—The 
term ‘health status-related factor’ has the meaning 
provided in section 733(d)(2). 
‘‘(7) INDIVIDUAL MARKET.— 
‘‘(A) IN GENERAL.—The term ‘individual 
market’ means the market for health insurance 
coverage offered to individuals other than in 
connection with a group health plan. 
‘‘(B) 
TREATMENT
OF
VERY
SMALL 
GROUPS.—
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‘‘(i) IN GENERAL.—Subject to clause 
(ii), such term includes coverage offered in 
connection with a group health plan that 
has fewer than 2 participants as current 
employees or participants described in sec-
tion 732(d)(3) on the first day of the plan 
year. 
‘‘(ii) STATE
EXCEPTION.—Clause (i) 
shall not apply in the case of health insur-
ance coverage offered in a State if such 
State regulates the coverage described in 
such clause in the same manner and to the 
same extent as coverage in the small group 
market (as defined in section 2791(e)(5) of 
the Public Health Service Act) is regulated 
by such State. 
‘‘(8) PARTICIPATING
EMPLOYER.—The term 
‘participating employer’ means, in connection with 
an association health plan, any employer, if any indi-
vidual who is an employee of such employer, a part-
ner in such employer, or a self-employed individual 
who is such employer (or any dependent, as defined 
under the terms of the plan, of such individual) is 
or was covered under such plan in connection with 
the status of such individual as such an employee,
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partner, or self-employed individual in relation to the 
plan. 
‘‘(9) APPLICABLE
STATE
AUTHORITY.—The 
term ‘applicable State authority’ means, with respect 
to a health insurance issuer in a State, the State in-
surance commissioner or official or officials des-
ignated by the State to enforce the requirements of 
title XXVII of the Public Health Service Act for the 
State involved with respect to such issuer. 
‘‘(10) QUALIFIED ACTUARY.—The term ‘quali-
fied actuary’ means an individual who is a member 
of the American Academy of Actuaries. 
‘‘(11) AFFILIATED MEMBER.—The term ‘affili-
ated member’ means, in connection with a sponsor— 
‘‘(A) a person who is otherwise eligible to 
be a member of the sponsor but who elects an 
affiliated status with the sponsor, 
‘‘(B) in the case of a sponsor with mem-
bers which consist of associations, a person who 
is a member of any such association and elects 
an affiliated status with the sponsor, or 
‘‘(C) in the case of an association health 
plan in existence on the date of the enactment 
of the Small Business Health Fairness Act of
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2004, a person eligible to be a member of the 
sponsor or one of its member associations. 
‘‘(12) LARGE EMPLOYER.—The term ‘large em-
ployer’ means, in connection with a group health 
plan with respect to a plan year, an employer who 
employed an average of at least 51 employees on 
business days during the preceding calendar year 
and who employs at least 2 employees on the first 
day of the plan year. 
‘‘(13) SMALL EMPLOYER.—The term ‘small em-
ployer’ means, in connection with a group health 
plan with respect to a plan year, an employer who 
is not a large employer. 
‘‘(b) RULES OF CONSTRUCTION.— 
‘‘(1) EMPLOYERS AND EMPLOYEES.—For pur-
poses of determining whether a plan, fund, or pro-
gram is an employee welfare benefit plan which is an 
association health plan, and for purposes of applying 
this title in connection with such plan, fund, or pro-
gram so determined to be such an employee welfare 
benefit plan— 
‘‘(A) in the case of a partnership, the term 
‘employer’ (as defined in section 3(5)) includes 
the partnership in relation to the partners, and 
the term ‘employee’ (as defined in section 3(6))
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includes any partner in relation to the partner-
ship; and 
‘‘(B) in the case of a self-employed indi-
vidual, the term ‘employer’ (as defined in sec-
tion 3(5)) and the term ‘employee’ (as defined 
in section 3(6)) shall include such individual. 
‘‘(2) PLANS, FUNDS, AND PROGRAMS TREATED 
AS EMPLOYEE WELFARE BENEFIT PLANS.—In the 
case of any plan, fund, or program which was estab-
lished or is maintained for the purpose of providing 
medical care (through the purchase of insurance or 
otherwise) for employees (or their dependents) cov-
ered thereunder and which demonstrates to the Sec-
retary that all requirements for certification under 
this part would be met with respect to such plan, 
fund, or program if such plan, fund, or program 
were a group health plan, such plan, fund, or pro-
gram shall be treated for purposes of this title as an 
employee welfare benefit plan on and after the date 
of such demonstration.’’. 
(b) CONFORMING AMENDMENTS
TO PREEMPTION 
RULES.— 
(1) Section 514(b)(6) of such Act (29 U.S.C. 
1144(b)(6)) is amended by adding at the end the 
following new subparagraph:
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‘‘(E) The preceding subparagraphs of this paragraph 
do not apply with respect to any State law in the case 
of an association health plan which is certified under part 
8.’’. 
(2) Section 514 of such Act (29 U.S.C. 1144) 
is amended— 
(A) in subsection (b)(4), by striking ‘‘Sub-
section (a)’’ and inserting ‘‘Subsections (a) and 
(d)’’; 
(B) in subsection (b)(5), by striking ‘‘sub-
section (a)’’ in subparagraph (A) and inserting 
‘‘subsection (a) of this section and subsections 
(a)(2)(B) and (b) of section 805’’, and by strik-
ing ‘‘subsection (a)’’ in subparagraph (B) and 
inserting ‘‘subsection (a) of this section or sub-
section (a)(2)(B) or (b) of section 805’’; 
(C) by redesignating subsection (d) as sub-
section (e); and 
(D) by inserting after subsection (c) the 
following new subsection: 
‘‘(d)(1) Except as provided in subsection (b)(4), the 
provisions of this title shall supersede any and all State 
laws insofar as they may now or hereafter preclude, or 
have the effect of precluding, a health insurance issuer 
from offering health insurance coverage in connection with
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an association health plan which is certified under part 
8. 
‘‘(2) Except as provided in paragraphs (4) and (5) 
of subsection (b) of this section— 
‘‘(A) In any case in which health insurance cov-
erage of any policy type is offered under an associa-
tion health plan certified under part 8 to a partici-
pating employer operating in such State, the provi-
sions of this title shall supersede any and all laws 
of such State insofar as they may preclude a health 
insurance issuer from offering health insurance cov-
erage of the same policy type to other employers op-
erating in the State which are eligible for coverage 
under such association health plan, whether or not 
such other employers are participating employers in 
such plan. 
‘‘(B) In any case in which health insurance cov-
erage of any policy type is offered in a State under 
an association health plan certified under part 8 and 
the filing, with the applicable State authority (as de-
fined in section 812(a)(9)), of the policy form in 
connection with such policy type is approved by such 
State authority, the provisions of this title shall su-
persede any and all laws of any other State in which 
health insurance coverage of such type is offered, in-
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sofar as they may preclude, upon the filing in the 
same form and manner of such policy form with the 
applicable State authority in such other State, the 
approval of the filing in such other State. 
‘‘(3) Nothing in subsection (b)(6)(E) or the preceding 
provisions of this subsection shall be construed, with re-
spect to health insurance issuers or health insurance cov-
erage, to supersede or impair the law of any State— 
‘‘(A) providing solvency standards or similar 
standards regarding the adequacy of insurer capital, 
surplus, reserves, or contributions, or 
‘‘(B) relating to prompt payment of claims. 
‘‘(4) For additional provisions relating to association 
health plans, see subsections (a)(2)(B) and (b) of section 
805. 
‘‘(5) For purposes of this subsection, the term ‘asso-
ciation health plan’ has the meaning provided in section 
801(a), and the terms ‘health insurance coverage’, ‘par-
ticipating employer’, and ‘health insurance issuer’ have 
the meanings provided such terms in section 812, respec-
tively.’’. 
(3) Section 514(b)(6)(A) of such Act (29 
U.S.C. 1144(b)(6)(A)) is amended— 
(A) in clause (i)(II), by striking ‘‘and’’ at 
the end;
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provision of this title, except by specific cross-reference to 
the affected section.’’. 
(c) PLAN SPONSOR.—Section 3(16)(B) of such Act 
(29 U.S.C. 102(16)(B)) is amended by adding at the end 
the following new sentence: ‘‘Such term also includes a 
person serving as the sponsor of an association health plan 
under part 8.’’. 
(d) DISCLOSURE OF SOLVENCY PROTECTIONS RE-
LATED TO SELF-INSURED AND FULLY INSURED OPTIONS 
UNDER ASSOCIATION HEALTH PLANS.—Section 102(b) 
of such Act (29 U.S.C. 102(b)) is amended by adding at 
the end the following: ‘‘An association health plan shall 
include in its summary plan description, in connection 
with each benefit option, a description of the form of sol-
vency or guarantee fund protection secured pursuant to 
this Act or applicable State law, if any.’’. 
(e) SAVINGS CLAUSE.—Section 731(c) of such Act is 
amended by inserting ‘‘or part 8’’ after ‘‘this part’’. 
(f) REPORT TO THE CONGRESS REGARDING CERTIFI-
CATION
OF
SELF-INSURED
ASSOCIATION
HEALTH 
PLANS.—Not later than January 1, 2009, the Secretary 
of Labor shall report to the Committee on Education and 
the Workforce of the House of Representatives and the 
Committee on Health, Education, Labor, and Pensions of
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the Senate the effect association health plans have had, 
if any, on reducing the number of uninsured individuals. 
(g) CLERICAL AMENDMENT.—The table of contents 
in section 1 of the Employee Retirement Income Security 
Act of 1974 is amended by inserting after the item relat-
ing to section 734 the following new items: 
‘‘PART 8—RULES GOVERNING ASSOCIATION HEALTH PLANS 
‘‘801. Association health plans. 
‘‘802. Certification of association health plans. 
‘‘803. Requirements relating to sponsors and boards of trustees. 
‘‘804. Participation and coverage requirements. 
‘‘805. Other requirements relating to plan documents, contribution rates, and 
benefit options. 
‘‘806. Maintenance of reserves and provisions for solvency for plans providing 
health benefits in addition to health insurance coverage. 
‘‘807. Requirements for application and related requirements. 
‘‘808. Notice requirements for voluntary termination. 
‘‘809. Corrective actions and mandatory termination. 
‘‘810. Trusteeship by the Secretary of insolvent association health plans pro-
viding health benefits in addition to health insurance coverage. 
‘‘811. State assessment authority. 
‘‘812. Definitions and rules of construction.’’. 
SEC. 2003. CLARIFICATION OF TREATMENT OF SINGLE EM-
PLOYER ARRANGEMENTS. 
Section 3(40)(B) of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1002(40)(B)) is amend-
ed— 
(1) in clause (i), by inserting after ‘‘control 
group,’’ the following: ‘‘except that, in any case in 
which the benefit referred to in subparagraph (A) 
consists of medical care (as defined in section 
812(a)(2)), two or more trades or businesses, wheth-
er or not incorporated, shall be deemed a single em-
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ployer for any plan year of such plan, or any fiscal 
year of such other arrangement, if such trades or 
businesses are within the same control group during 
such year or at any time during the preceding 1-year 
period,’’; 
(2) in clause (iii), by striking ‘‘(iii) the deter-
mination’’ and inserting the following: 
‘‘(iii)(I) in any case in which the benefit re-
ferred to in subparagraph (A) consists of medical 
care (as defined in section 812(a)(2)), the deter-
mination of whether a trade or business is under 
‘common control’ with another trade or business 
shall be determined under regulations of the Sec-
retary applying principles consistent and coextensive 
with the principles applied in determining whether 
employees of two or more trades or businesses are 
treated as employed by a single employer under sec-
tion 4001(b), except that, for purposes of this para-
graph, an interest of greater than 25 percent may 
not be required as the minimum interest necessary 
for common control, or 
‘‘(II) in any other case, the determination’’; 
(3) by redesignating clauses (iv) and (v) as 
clauses (v) and (vi), respectively; and
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(4) by inserting after clause (iii) the following 
new clause: 
‘‘(iv) in any case in which the benefit referred 
to in subparagraph (A) consists of medical care (as 
defined in section 812(a)(2)), in determining, after 
the application of clause (i), whether benefits are 
provided to employees of two or more employers, the 
arrangement shall be treated as having only one par-
ticipating employer if, after the application of clause 
(i), the number of individuals who are employees and 
former employees of any one participating employer 
and who are covered under the arrangement is 
greater than 75 percent of the aggregate number of 
all individuals who are employees or former employ-
ees of participating employers and who are covered 
under the arrangement,’’. 
SEC. 2004. ENFORCEMENT PROVISIONS RELATING TO ASSO-
CIATION HEALTH PLANS. 
(a) CRIMINAL PENALTIES FOR CERTAIN WILLFUL 
MISREPRESENTATIONS.—Section 501 of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1131) 
is amended— 
(1) by inserting ‘‘(a)’’ after ‘‘Sec. 501.’’; and 
(2) by adding at the end the following new sub-
section:
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‘‘(b) Any person who willfully falsely represents, to 
any employee, any employee’s beneficiary, any employer, 
the Secretary, or any State, a plan or other arrangement 
established or maintained for the purpose of offering or 
providing any benefit described in section 3(1) to employ-
ees or their beneficiaries as— 
‘‘(1) being an association health plan which has 
been certified under part 8; 
‘‘(2) having been established or maintained 
under or pursuant to one or more collective bar-
gaining agreements which are reached pursuant to 
collective bargaining described in section 8(d) of the 
National Labor Relations Act (29 U.S.C. 158(d)) or 
paragraph Fourth of section 2 of the Railway Labor 
Act (45 U.S.C. 152, paragraph Fourth) or which are 
reached pursuant to labor-management negotiations 
under similar provisions of State public employee re-
lations laws; or 
‘‘(3) being a plan or arrangement described in 
section 3(40)(A)(i), 
shall, upon conviction, be imprisoned not more than 5 
years, be fined under title 18, United States Code, or 
both.’’.
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(b) CEASE ACTIVITIES ORDERS.—Section 502 of 
such Act (29 U.S.C. 1132) is amended by adding at the 
end the following new subsection: 
‘‘(n) ASSOCIATION HEALTH PLAN CEASE AND DE-
SIST ORDERS.— 
‘‘(1) IN GENERAL.—Subject to paragraph (2), 
upon application by the Secretary showing the oper-
ation, promotion, or marketing of an association 
health plan (or similar arrangement providing bene-
fits consisting of medical care (as defined in section 
733(a)(2))) that— 
‘‘(A) is not certified under part 8, is sub-
ject under section 514(b)(6) to the insurance 
laws of any State in which the plan or arrange-
ment offers or provides benefits, and is not li-
censed, registered, or otherwise approved under 
the insurance laws of such State; or 
‘‘(B) is an association health plan certified 
under part 8 and is not operating in accordance 
with the requirements under part 8 for such 
certification, 
a district court of the United States shall enter an 
order requiring that the plan or arrangement cease 
activities.
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‘‘(2) EXCEPTION.—Paragraph (1) shall not 
apply in the case of an association health plan or 
other arrangement if the plan or arrangement shows 
that— 
‘‘(A) all benefits under it referred to in 
paragraph (1) consist of health insurance cov-
erage; and 
‘‘(B) with respect to each State in which 
the plan or arrangement offers or provides ben-
efits, the plan or arrangement is operating in 
accordance with applicable State laws that are 
not superseded under section 514. 
‘‘(3) ADDITIONAL
EQUITABLE
RELIEF.—The 
court may grant such additional equitable relief, in-
cluding any relief available under this title, as it 
deems necessary to protect the interests of the pub-
lic and of persons having claims for benefits against 
the plan.’’. 
(c) RESPONSIBILITY
FOR CLAIMS PROCEDURE.— 
Section 503 of such Act (29 U.S.C. 1133) is amended by 
inserting ‘‘(a) IN GENERAL.—’’ before ‘‘In accordance’’, 
and by adding at the end the following new subsection: 
‘‘(b) ASSOCIATION HEALTH PLANS.—The terms of 
each association health plan which is or has been certified 
under part 8 shall require the board of trustees or the
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named fiduciary (as applicable) to ensure that the require-
ments of this section are met in connection with claims 
filed under the plan.’’. 
SEC. 2005. COOPERATION BETWEEN FEDERAL AND STATE 
AUTHORITIES. 
Section 506 of the Employee Retirement Income Se-
curity Act of 1974 (29 U.S.C. 1136) is amended by adding 
at the end the following new subsection: 
‘‘(d) CONSULTATION WITH STATES WITH RESPECT 
TO ASSOCIATION HEALTH PLANS.— 
‘‘(1) AGREEMENTS
WITH
STATES.—The Sec-
retary shall consult with the State recognized under 
paragraph (2) with respect to an association health 
plan regarding the exercise of— 
‘‘(A) the Secretary’s authority under sec-
tions 502 and 504 to enforce the requirements 
for certification under part 8; and 
‘‘(B) the Secretary’s authority to certify 
association health plans under part 8 in accord-
ance with regulations of the Secretary applica-
ble to certification under part 8. 
‘‘(2) RECOGNITION
OF
PRIMARY
DOMICILE 
STATE.—In carrying out paragraph (1), the Sec-
retary shall ensure that only one State will be recog-
nized, with respect to any particular association
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health plan, as the State with which consultation is 
required. In carrying out this paragraph— 
‘‘(A) in the case of a plan which provides 
health insurance coverage (as defined in section 
812(a)(3)), such State shall be the State with 
which filing and approval of a policy type of-
fered by the plan was initially obtained, and 
‘‘(B) in any other case, the Secretary shall 
take into account the places of residence of the 
participants and beneficiaries under the plan 
and the State in which the trust is main-
tained.’’. 
SEC. 2006. EFFECTIVE DATE AND TRANSITIONAL AND 
OTHER RULES. 
(a) EFFECTIVE DATE.—The amendments made by 
this title shall take effect 1 year after the date of the en-
actment of this title. The Secretary of Labor shall first 
issue all regulations necessary to carry out the amend-
ments made by this title within 1 year after the date of 
the enactment of this title. 
(b) TREATMENT
OF CERTAIN EXISTING HEALTH 
BENEFITS PROGRAMS.— 
(1) IN GENERAL.—In any case in which, as of 
the date of the enactment of this title, an arrange-
ment is maintained in a State for the purpose of
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providing benefits consisting of medical care for the 
employees and beneficiaries of its participating em-
ployers, at least 200 participating employers make 
contributions to such arrangement, such arrange-
ment has been in existence for at least 10 years, and 
such arrangement is licensed under the laws of one 
or more States to provide such benefits to its par-
ticipating employers, upon the filing with the appli-
cable authority (as defined in section 812(a)(5) of 
the Employee Retirement Income Security Act of 
1974 (as amended by this subtitle)) by the arrange-
ment of an application for certification of the ar-
rangement under part 8 of subtitle B of title I of 
such Act— 
(A) such arrangement shall be deemed to 
be a group health plan for purposes of title I 
of such title; 
(B) the requirements of sections 801(a) 
and 803(a) of the Employee Retirement Income 
Security Act of 1974 shall be deemed met with 
respect to such arrangement; 
(C) the requirements of section 803(b) of 
such Act shall be deemed met, if the arrange-
ment is operated by a board of directors 
which—
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(i) is elected by the participating em-
ployers, with each employer having one 
vote; and 
(ii) has complete fiscal control over 
the arrangement and which is responsible 
for all operations of the arrangement; 
(D) the requirements of section 804(a) of 
such Act shall be deemed met with respect to 
such arrangement; and 
(E) the arrangement may be certified by 
any applicable authority with respect to its op-
erations in any State only if it operates in such 
State on the date of certification. 
The provisions of this subsection shall cease to apply 
with respect to any such arrangement at such time 
after the date of the enactment of this title as the 
applicable requirements of this subsection are not 
met with respect to such arrangement. 
(2) DEFINITIONS.—For purposes of this sub-
section, the terms ‘‘group health plan’’, ‘‘medical 
care’’, and ‘‘participating employer’’ shall have the 
meanings provided in section 812 of the Employee 
Retirement Income Security Act of 1974, except 
that the reference in paragraph (7) of such section 
to an ‘‘association health plan’’ shall be deemed a
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reference to an arrangement referred to in this sub-
section. 
Passed the House of Representatives May 12, 2004. 
Attest: 
JEFF TRANDAHL, 
Clerk.
Calendar No. 539 
108TH CONGRESS 
2D SESSION 
H. R. 4279 
AN ACT 
To amend the Internal Revenue Code of 1986 to 
provide for the disposition of unused health bene-
fits in cafeteria plans and flexible spending ar-
rangements, to improve patient access to health 
care services and provide improved medical care 
by reducing the excessive burden the liability sys-
tem places on the health care delivery system, 
and to amend title I of the Employee Retirement 
Income Security Act of 1974 to improve access 
and choice for entrepreneurs with small busi-
nesses with respect to medical care for their em-
ployees. 
MAY 21, 2004 
Read the second time and placed on the calendar